Farmers National Banc Corp.
Annual Report 2021

S T R O N G E R   T O G E T H E R
A N N U A L   R E P O R T   2 0 2 1

Forward Looking Statements

Cautionary  Note  Regarding Forward  Looking  Statements: Certain  statements  contained  herein  are 
“forward looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities 
Litigation Reform Act of 1995. For a discussion of factors that could cause future results to differ from
historical performance or those forward-looking statements, see “Cautionary Note Regarding Forward 
Looking Statements” on page 29, “Supervision and Regulation” on page (cid:21), and “Item 1A. Risk Factors” 
on page 1(cid:21) of the attached Annual Report on Form 10-K for the year ended December 31, 2021 and all 
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(cid:80)(cid:79)(cid:3)(cid:39)(cid:80)(cid:83)(cid:78)(cid:3)(cid:18)(cid:17)(cid:14)(cid:50)(cid:3)(cid:66)(cid:79)(cid:69)(cid:3)(cid:36)(cid:86)(cid:83)(cid:83)(cid:70)(cid:79)(cid:85)(cid:3)(cid:51)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:84)(cid:3)(cid:80)(cid:79)(cid:3)(cid:39)(cid:80)(cid:83)(cid:78)(cid:3)(cid:25)(cid:14)(cid:44)(cid:13)(cid:3)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:3)(cid:66)(cid:83)(cid:70)(cid:3)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:3)(cid:80)(cid:79)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:52)(cid:38)(cid:36)(cid:8)(cid:84)(cid:3)(cid:88)(cid:70)(cid:67)(cid:84)(cid:74)(cid:85)(cid:70)(cid:3)(cid:66)(cid:85)(cid:3)(cid:88)(cid:88)(cid:88)(cid:15)
sec.gov. We do not undertake, and expressly disclaim, any obligation to update any forward-looking
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Board of Directors

James R. Smail 2, 4, 5
Chairman of the Board
Chairman, Director and CEO 
J.R. Smail, Inc.

David Z. Paull 2, 4, 5
Vice Chairman of the Board
Retired Vice President, Human Resources 
Operations and Labor Relations, RTI 
International Metals, Inc.

Gregory C. Bestic 1, 3
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(cid:37)(cid:34)(cid:35)(cid:39)(cid:34)(cid:13)(cid:3)(cid:39)(cid:34)(cid:36)(cid:39)(cid:38)(cid:42)
Principal with Schroedel, Scullin & Bestic,
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Strategic Advisors

Anne Frederick Crawford 2, 3
Attorney-at-Law 
Self-employed/Sole Proprietor

Kevin J. Helmick 5
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(cid:39)(cid:66)(cid:83)(cid:78)(cid:70)(cid:83)(cid:84)(cid:3)(cid:47)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:66)(cid:77)(cid:3)(cid:35)(cid:66)(cid:79)(cid:76)

Ralph D. Macali 1, 3
Vice President of Palmer J. Macali, Inc. 
Partner in P.M.R.P. Partnership

Terry A. Moore 2, 3, 5
(cid:46)(cid:66)(cid:79)(cid:66)(cid:72)(cid:74)(cid:79)(cid:72)(cid:3)(cid:37)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:3)(cid:80)(cid:71)(cid:3)(cid:44)(cid:83)(cid:86)(cid:72)(cid:77)(cid:74)(cid:66)(cid:76)(cid:13)(cid:3)(cid:56)(cid:74)(cid:77)(cid:76)(cid:74)(cid:79)(cid:84)(cid:13)(cid:3)
(cid:40)(cid:83)(cid:74)(cid:71)(cid:109)(cid:85)(cid:73)(cid:84)(cid:3)(cid:66)(cid:79)(cid:69)(cid:3)(cid:37)(cid:80)(cid:86)(cid:72)(cid:73)(cid:70)(cid:83)(cid:85)(cid:90)

Edward W. Muransky 1, 4
CEO, Chestnut Land Company

Frank J. Monaco 1, 4
Senior Partner, 415 Group

Richard B. Thompson 2, 4
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Neil J. Kaback 1, 4
Partner, Cohen & Company

1 Audit Committee
2 Compensation Committee
3 Corporate Governance and Nominating Committee
4 Board Enterprise Risk Management Committee
5 Executive Committee

Annual Meeting Notice
The Annual Meeting of Shareholders will be held at 10:00 a.m. Eastern Time

on Thursday, April 21, 2022, via live webcast at https://meetnow.global/MPZAGMR

S T R O N G E R   T O G E T H E R
A N N U A L   R E P O R T   2 0 2 1

SUPERIOR PERFORMANCE 
RESULTS FROM BEING 
STRONGER TOGETHER 

Dear Fellow Shareholders, 

At times in life and in business, good can be an 
adversary to greatness. Your Company seeks to
be not merely a good, but a great, community 
bank. Acting decisively in response to sound 
opportunities  is  an  irreplaceable  element  in 
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performance relative to our peers.

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and Executive Management, I am pleased to 
share  that  2021  marks  our  sixth  consecutive
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ness  in  diligently  pursuing  continued  growth
of our fee-based businesses, to be a leading 
lender  in  the  Paycheck  Protection  Program 
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(cid:53)(cid:73)(cid:74)(cid:84)(cid:3) (cid:84)(cid:86)(cid:68)(cid:68)(cid:70)(cid:84)(cid:84)(cid:3) (cid:74)(cid:84)(cid:3) (cid:66)(cid:77)(cid:84)(cid:80)(cid:3) (cid:66)(cid:3) (cid:83)(cid:70)(cid:110)(cid:70)(cid:68)(cid:85)(cid:74)(cid:80)(cid:79)(cid:3) (cid:80)(cid:71)(cid:3) (cid:80)(cid:86)(cid:83)(cid:3) (cid:77)(cid:80)(cid:79)(cid:72)(cid:14)
term strategic vision of building a new model
of community banking for the 21st Century. In
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relationships and innovative banking technolo-
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cal conservatism is complimented by diligently-
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This  banking  model  received  extraordinary 
third-party validation in 2021, as Bank Director
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(cid:77)(cid:74)(cid:68)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:3) (cid:111)(cid:3) (cid:79)(cid:66)(cid:78)(cid:70)(cid:69)(cid:3) (cid:39)(cid:66)(cid:83)(cid:78)(cid:70)(cid:83)(cid:84)(cid:3) (cid:85)(cid:73)(cid:70)(cid:3) (cid:85)(cid:80)(cid:81)(cid:14)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:74)(cid:79)(cid:72)(cid:3)
community  bank  in  Ohio,  and  the  17th  top-
performer  in  the  nation.  Bank  Director  rated
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formance  measures,  with  particular  focus  on
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Record
Year

2021  was  another  year  of  record  financial 
results for your Company. Annual net income 
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percent increase over 2020.  

Farmers experienced continued growth in 2021 
with  the  addition  of  Cortland  Bancorp.  Total 
loans were $2.3 billion at December 31, 2021 
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2020, a 12.2 percent increase. Total deposits 
increased 36 percent over the prior year.

Finally,  our  tangible  book  value  per  share 
increased  2.6%  to  $10.91  at  December  31, 
(cid:19)(cid:17)(cid:19)(cid:18)(cid:15)(cid:3)(cid:38)(cid:71)(cid:109)(cid:68)(cid:74)(cid:70)(cid:79)(cid:68)(cid:90)(cid:3)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:3)(cid:71)(cid:80)(cid:83)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:90)(cid:70)(cid:66)(cid:83)(cid:3)(cid:88)(cid:66)(cid:84)(cid:3)(cid:22)(cid:18)(cid:15)(cid:18)(cid:20)(cid:6)(cid:13)
down from 52.55% in 2020. Return on assets 
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(cid:18)(cid:20)(cid:15)(cid:23)(cid:23)(cid:6)(cid:13)(cid:3)(cid:86)(cid:81)(cid:3)(cid:71)(cid:83)(cid:80)(cid:78)(cid:3)(cid:18)(cid:19)(cid:15)(cid:25)(cid:17)(cid:6)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:81)(cid:83)(cid:70)(cid:87)(cid:74)(cid:80)(cid:86)(cid:84)(cid:3)(cid:90)(cid:70)(cid:66)(cid:83)(cid:15)

Largest Acquisition
to Date

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over the last six years, the merging of Cortland 
Bancorp strengthens Farmers presence in its

existing  markets,  and  provides  competitive 
entrance  into  Summit  and  Portage  counties. 
(cid:53)(cid:73)(cid:70)(cid:3) (cid:36)(cid:80)(cid:83)(cid:85)(cid:77)(cid:66)(cid:79)(cid:69)(cid:3) (cid:66)(cid:68)(cid:82)(cid:86)(cid:74)(cid:84)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:3) (cid:74)(cid:79)(cid:68)(cid:83)(cid:70)(cid:66)(cid:84)(cid:70)(cid:84)(cid:3) (cid:39)(cid:66)(cid:83)(cid:78)(cid:70)(cid:83)(cid:84)(cid:8)(cid:3)
bank assets to over $4.1 billion. Farmers now
(cid:73)(cid:66)(cid:84)(cid:3)(cid:21)(cid:25)(cid:3)(cid:77)(cid:80)(cid:68)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:3)(cid:85)(cid:73)(cid:83)(cid:80)(cid:86)(cid:72)(cid:73)(cid:80)(cid:86)(cid:85)(cid:3)(cid:48)(cid:73)(cid:74)(cid:80)(cid:3)(cid:66)(cid:79)(cid:69)(cid:3)(cid:56)(cid:70)(cid:84)(cid:85)(cid:70)(cid:83)(cid:79)
Pennsylvania.

In  addition,  we  look  forward  to  offering  our 
(cid:56)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:3) (cid:46)(cid:66)(cid:79)(cid:66)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:3) (cid:84)(cid:70)(cid:83)(cid:87)(cid:74)(cid:68)(cid:70)(cid:84)(cid:3) (cid:85)(cid:80)(cid:3) (cid:36)(cid:80)(cid:83)(cid:85)(cid:77)(cid:66)(cid:79)(cid:69)(cid:8)(cid:84)(cid:3)
customers  and  growing  our  local  relation-
(cid:84)(cid:73)(cid:74)(cid:81)(cid:84)(cid:3) (cid:66)(cid:68)(cid:83)(cid:80)(cid:84)(cid:84)(cid:3) (cid:36)(cid:80)(cid:83)(cid:85)(cid:77)(cid:66)(cid:79)(cid:69)(cid:8)(cid:84)(cid:3) (cid:71)(cid:80)(cid:80)(cid:85)(cid:81)(cid:83)(cid:74)(cid:79)(cid:85)(cid:15)(cid:3) (cid:48)(cid:79)(cid:3) (cid:67)(cid:70)(cid:73)(cid:66)(cid:77)(cid:71)
of everyone at the Company, we are pleased
to  welcome  the  customers,  employees,  and 
shareholders of Cortland to Farmers National 
Banc Corp.

Jim Gasior, the former CEO/President of Cor-
tland  Bank  and  now  Senior  Executive  Vice
(cid:49)(cid:83)(cid:70)(cid:84)(cid:74)(cid:69)(cid:70)(cid:79)(cid:85)(cid:13)(cid:3)(cid:36)(cid:80)(cid:83)(cid:81)(cid:80)(cid:83)(cid:66)(cid:85)(cid:70)(cid:3)(cid:37)(cid:70)(cid:87)(cid:70)(cid:77)(cid:80)(cid:81)(cid:78)(cid:70)(cid:79)(cid:85)(cid:3)(cid:48)(cid:71)(cid:109)(cid:68)(cid:70)(cid:83)(cid:3)(cid:71)(cid:80)(cid:83)(cid:3)
Farmers, was instrumental in bringing this op-
portunity to fruition and sees it as a cultural as
(cid:88)(cid:70)(cid:77)(cid:77)(cid:3)(cid:66)(cid:84)(cid:3)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:3)(cid:109)(cid:85)(cid:15)

(cid:105)(cid:42)(cid:71)(cid:3)(cid:90)(cid:80)(cid:86)(cid:3)(cid:84)(cid:85)(cid:86)(cid:69)(cid:90)(cid:3)(cid:84)(cid:86)(cid:68)(cid:68)(cid:70)(cid:84)(cid:84)(cid:71)(cid:86)(cid:77)(cid:3)(cid:78)(cid:70)(cid:83)(cid:72)(cid:70)(cid:83)(cid:84)(cid:13)(cid:3)(cid:74)(cid:85)(cid:8)(cid:84)(cid:3)(cid:79)(cid:80)(cid:85)(cid:3)(cid:75)(cid:86)(cid:84)(cid:85)(cid:3)
about the numbers but about the people and 
organizational  cultures  meshing  seamlessly,”
says  Gasior.  “From  our  leadership  teams  to 
our front-line people at the branches, we are 
(cid:66)(cid:77)(cid:77)(cid:3) (cid:69)(cid:83)(cid:74)(cid:87)(cid:70)(cid:79)(cid:3) (cid:85)(cid:80)(cid:3) (cid:69)(cid:70)(cid:77)(cid:74)(cid:87)(cid:70)(cid:83)(cid:3) (cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:3) (cid:66)(cid:79)(cid:69)(cid:3) (cid:70)(cid:82)(cid:86)(cid:74)(cid:85)(cid:90)(cid:3) (cid:85)(cid:80)(cid:3) (cid:80)(cid:86)(cid:83)(cid:3)
shareholders  and  enhance  the  products  we
can offer our customers.”

2

S T R O N G E R   T O G E T H E R
A N N U A L   R E P O R T   2 0 2 1

(cid:80)(cid:86)(cid:85)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:3)(cid:71)(cid:80)(cid:83)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:90)(cid:70)(cid:66)(cid:83)(cid:13)(cid:3)(cid:88)(cid:74)(cid:85)(cid:73)(cid:3)(cid:36)(cid:80)(cid:83)(cid:70)(cid:3)(cid:38)(cid:82)-
(cid:86)(cid:74)(cid:85)(cid:90)(cid:3)(cid:86)(cid:81)(cid:3)(cid:20)(cid:19)(cid:15)(cid:26)(cid:17)(cid:6)(cid:3)(cid:87)(cid:70)(cid:83)(cid:84)(cid:86)(cid:84)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:52)(cid:7)(cid:49)(cid:3)(cid:86)(cid:81)(cid:3)(cid:19)(cid:25)(cid:15)(cid:24)(cid:18)(cid:6)(cid:15)

Conclusion

Balancing due diligence with decisiveness
will continue to be a key characteristic of 
your  Company  and  its  leadership.  Our
relentless drive to be a great community
(cid:67)(cid:66)(cid:79)(cid:76)(cid:3) (cid:74)(cid:84)(cid:3) (cid:78)(cid:80)(cid:85)(cid:74)(cid:87)(cid:66)(cid:85)(cid:70)(cid:69)(cid:3) (cid:74)(cid:79)(cid:3) (cid:84)(cid:74)(cid:72)(cid:79)(cid:74)(cid:109)(cid:68)(cid:66)(cid:79)(cid:85)(cid:3) (cid:81)(cid:66)(cid:83)(cid:85)(cid:3) (cid:67)(cid:90)(cid:3)
our  intention  to  drive  shareholder  and
stakeholder value.

No one foresaw the Covid-19 pandemic, 
and few saw that it would unfortunately be
a longstanding reality. But, we have seen
that organizations that are both decisive 
and adaptive to the new and evolving nor-
(cid:78)(cid:66)(cid:77)(cid:3)(cid:68)(cid:66)(cid:79)(cid:3)(cid:66)(cid:79)(cid:69)(cid:3)(cid:88)(cid:74)(cid:77)(cid:77)(cid:3)(cid:84)(cid:86)(cid:68)(cid:68)(cid:70)(cid:70)(cid:69)(cid:15)(cid:3)(cid:58)(cid:80)(cid:86)(cid:83)(cid:3)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:8)(cid:84)(cid:3)
leadership is committed to being among
the successful on a sustained basis.

Sincerely,

Kevin J. Helmick
President & Chief Executive Officer

Farmers  National  Investments  had  two
teams achieve over $1.0 million in revenue 
(cid:71)(cid:80)(cid:83)(cid:3) (cid:85)(cid:73)(cid:70)(cid:3) (cid:109)(cid:83)(cid:84)(cid:85)(cid:3) (cid:85)(cid:74)(cid:78)(cid:70)(cid:3) (cid:74)(cid:79)(cid:3) (cid:73)(cid:74)(cid:84)(cid:85)(cid:80)(cid:83)(cid:90)(cid:15)(cid:3) (cid:42)(cid:79)(cid:3) (cid:66)(cid:69)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:13)
Farmers National Insurance had every pro-
ducer see year-over-year growth in sales.

Wealth Management

Our Wealth Management associates con-
tinued to build on the record revenue and 
impressive momentum generated during 
this past year. As of December 31, 2021, 
Wealth  Management  Assets  under  Care 
were $3.1 billion.

P R I V A T E   B A N K I N G

Our  Private  Banking  division  saw  strong 
growth in deposits and referrals to Farm-
ers Trust Company and Farmers National 
Investments.

T R U S T   C O M P A N Y

Farmers  Trust  Company  had  annualized 
new  business  revenue  of  $1.7  million
and  completed  the  conversion  of  their 
core Trust accounting system. The Trust 
(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:3)(cid:66)(cid:77)(cid:84)(cid:80)(cid:3)(cid:84)(cid:66)(cid:88)(cid:3)(cid:84)(cid:74)(cid:72)(cid:79)(cid:74)(cid:109)(cid:68)(cid:66)(cid:79)(cid:85)(cid:3)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:3)

Paycheck
Protection
Program
(PPP)

Paycheck Protection Program (PPP 
In 2021, your Bank continued to reap the
(cid:67)(cid:70)(cid:79)(cid:70)(cid:109)(cid:85)(cid:84)(cid:3)(cid:80)(cid:71)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:85)(cid:83)(cid:70)(cid:78)(cid:70)(cid:79)(cid:69)(cid:80)(cid:86)(cid:84)(cid:3)(cid:66)(cid:78)(cid:80)(cid:86)(cid:79)(cid:85)(cid:3)(cid:80)(cid:71)(cid:3)(cid:80)(cid:71)(cid:85)(cid:70)(cid:79)
round-the-clock effort by our commercial
lending team members in 2020 to meet the
needs  of  hundreds  of  small  businesses 
during  the  Covid-19  pandemic  via  the 
(cid:39)(cid:70)(cid:69)(cid:70)(cid:83)(cid:66)(cid:77)(cid:3) (cid:40)(cid:80)(cid:87)(cid:70)(cid:83)(cid:79)(cid:78)(cid:70)(cid:79)(cid:85)(cid:8)(cid:84)(cid:3) (cid:49)(cid:66)(cid:90)(cid:68)(cid:73)(cid:70)(cid:68)(cid:76)(cid:3) (cid:49)(cid:83)(cid:80)(cid:85)(cid:70)(cid:68)-
tion Program.

After ensuring we had met the needs of our 
existing clients, your Bank stepped up and 
met  the  needs  of  many  businesses  who 
could not get the PPP enrollment service 
they needed from their own banks. As a
result, we have seen many of these local
market businesses reciprocate by switch-
ing their banking loyalty to Farmers. This 
is  an  example  of  what  true  community 
banking is all about. 

3

3

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
☒

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2021
or

☐

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

to

Commission file number 001-35296

Farmers National Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization)

20 South Broad Street, Canfield, Ohio
(Address of principal executive offices)

34-1371693
(I.R.S. Employer
Identification No.)

44406
(Zip Code)

Registrant’s telephone number, including area code: 330-533-3341
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Shares, no par value

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No (cid:4)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ((§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No (cid:4)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Non-accelerated filer
Emerging growth company

☐
☐
☐

Accelerated filer
Smaller reporting company

☒
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:4)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2021, the estimated aggregate market value of the registrant’s common shares, no par value (the only common equity of the registrant), held by non-affiliates of the
registrant was approximately $402.4 million based upon the last sales price as of June 30, 2021 reported on NASDAQ. (The exclusion from such amount of the market value of
the common shares owned by any person shall not be deemed as admission by the registrant that such person is an affiliate of the registrant).
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, No Par Value

Trading Symbol
FMNB

Name of each exchange on which registered
The NASDAQ Stock Market

As of March 1, 2022, the registrant had outstanding 34,004,914 common shares, no par value.

DOCUMENTS INCORPORATED BY REFERENCE

Document
Portions of the registrant’s definitive proxy statement for the 2022
Annual Meeting of Shareholders

Part of Form 10-K
into which
Document is Incorporated
III

FARMERS NATIONAL BANC CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021

TABLE OF CONTENTS

PART I
Item 1.
Business ..........................................................................................................................................................................
Item 1A. Risk Factors ....................................................................................................................................................................
Item 1B. Unresolved Staff Comments...........................................................................................................................................
Properties ........................................................................................................................................................................
Item 2.
Legal Proceedings...........................................................................................................................................................
Item 3.
Mine Safety Disclosures .................................................................................................................................................
Item 4.

PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ....
Item 5.
Reserved .........................................................................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.........................................
Item 7A. Quantitative and Qualitative Disclosure about Market Risk ..........................................................................................
Financial Statements and Supplementary Financial Data ..............................................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................................
Item 9A. Controls and Procedures .................................................................................................................................................
Item 9B. Other Information ...........................................................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ...........................................................................

PART III

Item 10. Directors, Executive Officers and Corporate Governance .............................................................................................
Executive Compensation ................................................................................................................................................
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......................
Item 12.
Certain Relationships and Related Transactions, and Director Independence ...............................................................
Item 13.
Principal Accountant Fees and Services.........................................................................................................................
Item 14.

Item 15.
Item 16.

PART IV
Exhibits, Financial Statement Schedules........................................................................................................................
Form 10-K Summary......................................................................................................................................................

SIGNATURES .................................................................................................................................................................................

1
14
27
27
27
27

28
28
29
47
49
109
110
110
110

111
111
112
112
112

112
112

116

PART I

Item 1. Business.

General

Farmers National Banc Corp.

Farmers National Banc Corp. (the “Company,” “Farmers,” “we,” “our” or “us”), is a financial holding
company and was organized as a one-bank holding company in 1983 under the laws of the State of Ohio and
registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Amendments to the BHCA
in 1999 allowed for a bank holding company to declare itself a financial holding company and thereby engage in
financial activities, including securities underwriting and dealing, insurance agency and underwriting activities, and
merchant banking activities. The Company made the declaration to become a financial holding company in 2016.
For a bank holding company to be eligible to declare itself a financial holding company, all of the depository
institution subsidiaries must be well-capitalized and well-managed and have satisfactory or better ratings under the
Community Reinvestment Act. The Company operates principally through its wholly-owned subsidiaries, The
Farmers National Bank of Canfield (the “Bank” or “Farmers Bank”), Farmers Trust Company (“Farmers Trust”),
and Farmers National Captive, Inc. (“Captive”). Farmers National Insurance, LLC (“Farmers Insurance”) and
Farmers of Canfield Investment Co. (“Investments or “Farmers Investments”) are wholly-owned subsidiaries of the
Bank. The Company and its subsidiaries operate in the domestic banking, trust, retirement consulting, insurance and
financial management industries.

The Company’s principal business consists of owning and supervising its subsidiaries. Although Farmers
directs the overall policies of its subsidiaries, including lending practices and financial resources, most day-to-day
affairs are managed by their respective officers.

The Company’s principal executive offices are located at 20 South Broad Street, Canfield, Ohio 44406, and its
telephone number is (330) 533-3341. Farmers’ common shares, no par value, are listed on the NASDAQ Capital
Market (the “NASDAQ”) under the symbol “FMNB.” Farmers’ business activities are managed and financial
performance is primarily aggregated and reported in two lines of business, the Bank segment and the Trust segment.
For a discussion of Farmers’ financial performance for the fiscal year ended December 31, 2021, see the
Consolidated Financial Statements and Notes to the Consolidated Financial Statements found in Item 8 of this
Annual Report on Form 10-K.

The Farmers National Bank of Canfield

On November 1, 2021, the Company completed the merger with Cortland Bancorp Inc. (“Cortland”), the
parent company of The Cortland Savings and Banking Company (“Cortland Bank”), pursuant to the Agreement and
Plan of Merger, dated as of June 22, 2021, as amended by that certain Amendment to Agreement and Plan of
Merger, dated October 12, 2021 (collectively, the “Merger Agreement”), by and among the Company, Cortland, and
FMNB Merger Subsidiary IV, LLC, a wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the
terms of the Merger Agreement, on November 1, 2021, Cortland merged with and into Merger Sub (the “Merger”),
with Merger Sub as the surviving entity in the Merger. Promptly following the consummation of the Merger,
Merger Sub was dissolved and liquidated and Cortland Bank merged with and into the Bank (the “Bank Merger”),
with the Bank as the surviving bank in the Bank Merger. The transaction received the approval of Cortland’s
shareholders and all customary regulatory approvals. Pursuant to the terms of the Merger Agreement, at the
effective time of the Merger, each common share, without par value, of Cortland issued and outstanding
immediately prior to the effective time (except for certain Cortland common shares held directly by Cortland or the
Company) was converted into the right to receive, without interest, $28.00 per share in cash or 1.75 shares of the
Company’s common stock, subject to an overall limitation of 75% of the Cortland shares being exchanged for the
Company’s shares and the remaining 25% being exchanged for cash. Cortland Bank had branches located in
Cuyahoga, Portage, Mahoning, Summit and Trumbull Counties in Ohio. Additional discussion about the acquisition
can be found in Note 2 to the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form
10-K.

1

The Bank is a full-service national banking association engaged in commercial and retail banking mainly in
Mahoning, Trumbull, Columbiana, Wayne, Holmes, Geauga, Cuyahoga, Medina, Summit, Portage and Stark
Counties in Ohio and a location in Beaver County, Pennsylvania. The Bank’s commercial and retail banking
services include checking accounts, savings accounts, time deposit accounts, commercial, mortgage and installment
loans, home equity loans, home equity lines of credit, night depository, safe deposit boxes, money orders, bank
checks, automated teller machines, internet banking, travel cards, “E” Bond transactions, MasterCard and Visa
credit cards, brokerage services and other miscellaneous services normally offered by commercial banks.

A discussion of the general development of the Bank’s business and information regarding its financial
performance throughout 2021, is discussed in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Item 7 of this Annual Report on Form 10-K.

The Bank faces significant competition in offering financial services to customers. Ohio has a high density of
financial service providers, many of which are significantly larger institutions that have greater financial resources
than the Bank, and all of which are competitors to varying degrees. Competition for loans comes principally from
savings banks, savings and loan associations, commercial banks, mortgage banking companies, credit unions,
insurance companies and other financial service companies. The most direct competition for deposits has
historically come from savings and loan associations, savings banks, commercial banks and credit unions.
Additional competition for deposits comes from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies.

Farmers Trust Company

During 2009, the Company acquired the Farmers Trust. Farmers Trust offers a full complement of personal
and corporate trust services in the areas of estate settlement, trust administration, employee benefit plans and
retirement services. During 2019, National Associates Inc. was combined with the Farmers Trust entity. Farmers
Trust operates five offices located in Boardman, Canton, Howland, Wooster and Fairview Park, Ohio.

Farmers National Captive, Inc.

Captive was formed during 2016 and is a wholly-owned insurance subsidiary of the Company that provides
property and casualty insurance coverage to the Company and its subsidiaries. The Captive pools resources with
eleven similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among
themselves and to provide insurance where not currently available or economically feasible in today’s insurance
market place. Captive does not account for a material portion of the revenue and, therefore, will not be discussed
individually, but as part of the Company.

Farmers National Insurance, LLC

Farmers Insurance was formed during 2009 and offers a variety of insurance products through licensed
representatives. During 2016,
the Bank completed the acquisition of the Bowers Insurance Agency, Inc.
(“Bowers”). The transaction involved both cash and stock. All activity has been merged into Farmers Insurance.
Farmers Insurance is a subsidiary of Farmers Bank and does not account for a material portion of the revenue and,
therefore, will not be discussed individually, but as part of the Bank.

Farmers of Canfield Investment Company

Farmers Investments was formed during 2014, with the primary purpose of investing in municipal securities.
Farmers Investments is a subsidiary of Farmers Bank and does not account for a material portion of the revenue and,
therefore, will not be discussed individually, but as part of the Bank.

Investor Relations

The Company maintains an Internet site at http://www.farmersbankgroup.com, which contains an Investor
Relations section that provides access to the Company’s filings with the Securities and Exchange Commission (the

2

“Commission”). Farmers makes available free of charge on or through its website the Company’s annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such documents filed
or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as
reasonably practicable after the Company has filed these documents with the Commission.
In addition, the
Company’s filings with the Commission may be read and copied at the Commission’s Public Reference Room at
Information on the operation of the Public Reference Room may be
100 F Street, NE, Washington, DC 20549.
obtained by calling 1-800-SEC-0330.
These filings are also available on the Commission’s web site at
http://www.sec.gov free of charge as soon as reasonably practicable after the Company has filed the above
referenced reports.

Human Capital

Our core values of Integrity, Respect, Diligence, Stewardship, Commitment, Relationships and Performance
represent our belief that our long-term success is closely tied to having a dedicated and engaged workforce. We are
committed to attracting, developing, and retaining associates who reflect the communities in which we serve. As of
December 31, 2021, Farmers and its subsidiaries had 550 full-time equivalent employees. The market for top talent
is highly competitive, and we recognize that workforce turnover is not only financially costly, but also is not aligned
with our commitment to our team. Farmers is committed to supporting a high performing, collaborative culture that
provides the foundation to attract and retain the best associates in banking. By investing in our team, we also invest
in our financial future. We offer all of our associates a comprehensive benefits package that includes medical,
dental and vision insurance, a flexible spending plan, prescription drug coverage, group life insurance, short-term
and long-term disability insurance, a traditional 401(k) Plan, a Roth IRA plan, competitive paid time off/paid
holidays, competitive incentives, an annual Profit Sharing Plan and an Employee Stock Purchase Plan.

We are committed to providing a safe and secure work environment in accordance with applicable labor,
safety, health, anti-discrimination and other workplace laws. We strive for all of our associates to feel safe and
empowered at work. To that end, we maintain a whistleblower hotline that allows associates and others to
anonymously voice concerns. We prohibit retaliation against an individual who reported a concern or assisted with
an inquiry or investigation.

Our Company has taken workplace safety very seriously during the COVID-19 pandemic (“COVID-19”). As
the scope of the pandemic broadened, Farmers implemented specific protocols in our Disaster Recovery Plan
designed to safeguard our employees and clients. We secured and distributed the necessary PPE to all locations,
enacted all applicable government-mandated/CDC-recommended guidelines for safe social distancing (including the
installation of Plexiglass barriers, floor spacing markers and hand-sanitizer stations), restricted lobby access as
needed, promoted the use of drive-thru banking, internet banking and the use of ITM’s, provided additional PTO
time for front-line employees, enabled secure work-from-home access for back-office/support personnel, paid
additional bonuses to associates making less than $50,000 annually, waived medical plan cost-sharing for tele-health
and COVID-19 testing, provided increased facility cleaning and disinfecting frequency including the introduction of
germ mitigation services and allowing for flexible scheduling options where appropriate.

3

Supervision and Regulation

Introduction

The Company and its subsidiaries are subject to extensive regulation by federal and state regulatory agencies.
The regulation of financial holding companies and their subsidiaries is intended primarily for the protection of
consumers, depositors, borrowers, the Deposit Insurance Fund (the “DIF”) and the banking system as a whole and
not for the protection of shareholders. This intensive regulatory environment, among other things, may restrict the
Company’s ability to diversify into certain areas of financial services, acquire depository institutions in certain
markets or pay dividends on its common shares. It also may require the Company to provide financial support to its
banking and other subsidiaries, maintain capital balances in excess of those desired by management and pay higher
deposit insurance premiums as a result of the deterioration in the financial condition of depository institutions in
general.

Significant aspects of the laws and regulations that have, or could have a material impact on Farmers and its
subsidiaries are described below. To the extent that the following discussion describes legislation, statutes,
regulations or policies applicable to the Company or its subsidiaries, the discussion is qualified in its entirety by
reference to the full text of the legislation, statutes, regulations and policies that are described herein, as they may be
amended or revised by the U.S. Congress or state legislatures and federal or state regulatory agencies, as the case
may be. Changes in these legislation, statutes, regulations and policies may have a material adverse effect on the
Company and its business, financial condition or results of operations. Such legislation, statutes, regulations and
policies are continually under review by the U.S. Congress and state legislatures as well as federal and state
regulatory agencies and are subject to change at any time, particularly in the current economic and regulatory
environment. Any such change in applicable legislation, statutes, regulations or regulatory policies could have a
material adverse effect on the Company and its business, financial condition or results of operations.

Regulatory Agencies

Financial Holding Company. Farmers elected to be a financial holding company. A bank holding company
may elect to become a financial holding company if each of its subsidiary banks is well capitalized under the prompt
corrective action regulations of the Federal Deposit Insurance Corporation (the “FDIC”), is well managed, and has
at least a satisfactory rating under the Community Reinvestment Act of 1977 (the “CRA”). Financial holding
companies may engage in activities that are financial in nature, including affiliating with securities firms and
insurance companies, which are not otherwise permissible for a bank holding company.

As a financial holding company, Farmers is subject to regulation under the BHCA and to inspection,
examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve
Board”). The Federal Reserve Board has extensive enforcement authority over financial and bank holding
companies and may initiate enforcement actions for violations of laws and regulations and unsafe or unsound
practices. The Federal Reserve Board may assess civil money penalties, issue cease and desist or removal orders
and may require that a bank holding company divest subsidiaries, including subsidiary banks. Farmers is also
required to file reports and other information with the Federal Reserve Board regarding its business operations and
those of its subsidiaries.

Subsidiary Bank. The Bank is subject

to regulation and examination primarily by the Office of the
Comptroller of the Currency (the “OCC”) and secondarily by the FDIC. OCC regulations govern permissible
activities, capital requirements, dividend limitations, investments, loans and other matters. The OCC has extensive
enforcement authority over Farmers Bank and may impose sanctions on Farmers Bank and, under certain
circumstances, may place Farmers Bank into receivership.

Farmers Bank is also subject to certain restrictions imposed by the Federal Reserve Act and Federal Reserve
Board regulations regarding such matters as the maintenance of reserves against deposits, extensions of credit to
Farmers or any of its subsidiaries, investments in the stock or other securities of Farmers or its subsidiaries and the
taking of such stock or securities as collateral for loans to any borrower.

Non-Banking Subsidiaries. Farmers’ non-banking subsidiaries are also subject to regulation by the Federal
In particular, Farmers Insurance is subject to

Reserve Board and other applicable federal and state agencies.

4

regulation by the Ohio Department of Insurance, which requires, amongst other things, the education and licensing
of agencies and individual agents and imposes business conduct rules.

Securities and Exchange Commission and The NASDAQ Stock Market LLC. The Company is also under the
regulation and supervision of the Commission and certain state securities commissions for matters relating to the
offering and sale of its securities. The Company is subject to disclosure and regulatory requirements of the
Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act, and the regulations promulgated
thereunder. Farmers common shares are listed on the NASDAQ under the symbol “FMNB” and the Company is
subject to the rules for NASDAQ listed companies.

Federal Home Loan Bank. Farmers Bank is a member of the Federal Home Loan Bank of Cincinnati (the
“FHLB”), which provides credit to its members in the form of advances. As a member of the FHLB, the Bank must
maintain an investment in the capital stock of the FHLB in a specified amount. Upon the origination or renewal of a
loan or advance, the FHLB is required by law to obtain and maintain a security interest in certain types of collateral.
The FHLB is required to establish standards of community investment or service that its members must maintain for
continued access to long-term advances from the FHLB. The standards take into account a member’s performance
under the CRA and its record of lending to first-time home buyers.

The Federal Deposit Insurance Corporation. The FDIC is an independent federal agency that insures the
deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the
safety and soundness of the financial institution industry. The Bank’s deposits are insured up to applicable limits by
the DIF of the FDIC and subject to deposit insurance assessments to maintain the DIF.

The FDIC may terminate insurance coverage upon a finding that an insured depository institution has engaged
in unsafe or unsound practices, is in an unsafe or unsound condition, or has violated any applicable law, regulation,
rule, order or condition enacted or imposed by the institution’s regulatory agency.

Financial Holding Company Regulation

As a financial holding company, Farmers’ activities are subject to extensive regulation by the Federal Reserve
Board under the BHCA. Generally, in addition to the BHCA limits of banking, managing or controlling banks and
other activities that the Federal Reserve Board has determined to be closely related to banking, financial holding
company activities may include securities underwriting and dealing, insurance agency and underwriting activities
and merchant banking activities. Under Federal Reserve Board policy, a financial holding company is expected to
serve as a source of financial and managerial strength to each subsidiary and to commit resources to support those
subsidiaries. Under this policy, the Federal Reserve Board may require the company to contribute additional capital
to an undercapitalized subsidiary and may disapprove of the payment of dividends to the holding company’s
shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound
practice. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”)
codified this policy as a statutory requirement.

The BHCA requires prior approval by the Federal Reserve Board for a bank holding company to directly or
indirectly acquire more than a 5.0% voting interest in any bank or its parent holding company. Factors taken into
consideration in making such a determination include the effect of the acquisition on competition, the public benefits
expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis and
the acquiring institution’s record of addressing the credit needs of the communities it serves.

The BHCA also governs interstate banking and restricts Farmers’ nonbanking activities to those determined
by the Federal Reserve Board to be financial in nature, or incidental or complementary to such financial activity,
without regard to territorial restrictions. Transactions among the Bank and its affiliates are also subject to certain
limitations and restrictions of the Federal Reserve Board, as described more fully under the caption “Dividends and
Transactions with Affiliates” in this Item 1.

5

The Gramm-Leach-Bliley Act of 1999 permits a qualifying bank holding company to elect to become a
financial holding company and thereby affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature and not otherwise permissible for a bank holding company. Farmers elected to
become a financial holding company during 2016.

Regulation of Nationally Chartered Banks

As a national banking association, Farmers Bank is subject to regulation under the National Banking Act and
is periodically examined by the OCC. OCC regulations govern permissible activities, capital requirements, dividend
limitations, investments, loans and other matters. Furthermore, Farmers Bank is subject, as a member bank, to
certain rules and regulations of the Federal Reserve Board, many of which restrict activities and prescribe
documentation to protect consumers. Under the Bank Merger Act, the prior approval of the OCC is required for a
In reviewing
national bank to merge with, or purchase the assets or assume the deposits of, another bank.
applications to approve merger and other acquisition transactions, the OCC and other bank regulatory authorities
may include among their considerations the competitive effect and public benefits of the transactions, the capital
position of the combined organization, the applicant’s performance under the CRA and fair housing laws, and the
effectiveness of the entities in restricting money laundering activities. In addition, the establishment of branches by
Farmers Bank is subject to the prior approval of the OCC. The OCC has the authority to impose sanctions on the
Bank and, under certain circumstances, may place Farmers Bank into receivership.

The Bank is also an insured institution as a member of the DIF. As a result, it is subject to regulation and

deposit insurance assessments by the FDIC.

Dividends and Transactions with Affiliates

The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. The Company’s
principal source of funds to pay dividends on its common shares and service its debt is dividends from Farmers
Bank and its other subsidiaries. Various federal and state statutory provisions and regulations limit the amount of
dividends that Farmers Bank may pay to Farmers without regulatory approval. Farmers Bank generally may not,
without prior regulatory approval, pay a dividend in an amount greater than its undivided profits after deducting
In addition, prior approval of the OCC is
statutory bad debt in excess of the Bank’s allowance for loan losses.
required for the payment of a dividend if the total of all dividends declared in a calendar year would exceed the total
of Farmers Bank’s net income for the year combined with its retained net income for the two preceding years.

In addition, Farmers and Farmers Bank are subject to other regulatory policies and requirements relating to the
payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The federal
banking agencies are authorized to determine under certain circumstances that the payment of dividends would be
an unsafe or unsound practice and to prohibit payment thereof. The federal banking agencies have stated that paying
dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice
and that banking organizations should generally pay dividends only out of current operating earnings. In addition, in
the current financial and economic environment, the Federal Reserve Board has indicated that financial holding
companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum
allowable levels, unless both asset quality and capital are very strong. Thus, the ability of Farmers to pay dividends
in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital
guidelines.

The Bank is subject to restrictions under federal law that limit the transfer of funds or other items of value to
the Company and its nonbanking subsidiaries and affiliates, whether in the form of loans and other extensions of
credit, investments and asset purchases or other transactions involving the transfer of value from a subsidiary to an
affiliate or for the benefit of an affiliate. These regulations limit the types and amounts of transactions (including
loans due and extensions of credit) that may take place and generally require those transactions to be on an arm’s-
length basis. In general, these regulations require that any “covered transaction” by Farmers Bank with an affiliate
must be secured by designated amounts of specified collateral and must be limited, as to any one of Farmers or its
non-bank subsidiaries, to 10% of Farmers Bank’s capital stock and surplus, and, as to Farmers and all such non-bank
subsidiaries in the aggregate,
to 20% of Farmers Bank’s capital stock and surplus. The Dodd-Frank Act
significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking

6

organization including, for example, the requirement that the 10% capital limit on covered transactions apply to
financial subsidiaries. “Covered transactions” are defined by statute to include a loan or extension of credit, as well
as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve Board) from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the
acceptance of securities issued by the affiliate as collateral for a loan and the issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate.

Capital loans from the Company to the Bank are subordinate in right of payment to deposits and certain other
In the event of Farmers’ bankruptcy, any commitment by Farmers to a federal bank
indebtedness of the Bank.
regulatory agency to maintain the capital of Farmers Bank will be assumed by the bankruptcy trustee and entitled to
a priority of payment.

The Federal Deposit Insurance Act of 1950, as amended, provides that, in the event of the “liquidation or other
resolution” of an insured depository institution such as the Bank, the insured and uninsured depositors, along with
the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including the Company, with
respect to any extensions of credit they have made to such insured depository institution.

Capital Adequacy

Both Farmers and Farmers Bank are subject to risk-based capital requirements imposed by their respective
primary federal banking regulator. The Federal Reserve Bank monitors the capital adequacy of Farmers and the
FDIC monitors the capital adequacy of Farmers Bank.

In July 2013, the Federal banking regulators approved a final rule to implement the revised capital adequacy
standards of the Basel Committee on Banking Supervision (“Basel III”), and to address relevant provisions of the
Dodd-Frank Act. The final rule strengthens the definition of regulatory capital, increases risk-based capital
requirements, makes selected changes to the calculation of risk-weighted assets and adjusts the prompt corrective
action thresholds. The Company and the Bank became subject to Basel III on January 1, 2015.

Under Basel III, common equity tier 1 capital consists of common stock and paid-in capital (net of treasury
stock) and retained earnings. Common equity tier 1 capital is reduced by goodwill, certain intangible assets, net of
associated deferred tax liabilities, deferred tax assets that arise from tax credit and net operating loss carryforwards,
net of any valuation allowance, and certain other items as specified by Basel III.

Tier 1 capital includes common equity tier 1 capital and certain additional tier 1 items as provided under Basel
III. Tier 2 capital, which can be included in the total capital ratio, generally consists of other preferred stock and
subordinated debt meeting certain conditions plus limited amounts of the allowance for loan and lease losses, subject
to specified eligibility criteria, less applicable deductions.

Basel III allow for insured depository institutions to make a one-time election not to include most elements of
accumulated other comprehensive income in regulatory capital and instead effectively use the existing treatment
under the general risk-based capital rules. The Company and the Bank made this opt-out election in the first quarter
of 2015 to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations
on the fair value of our investment securities portfolio.

Basel III also changed the risk-weights of assets in an effort to better reflect credit risk and other risk

exposures.

7

Basel III limits capital distributions and certain discretionary bonus payments if the banking organization does
not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total
capital
to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital
requirements. Basel III requires the Bank to maintain: (i) a minimum ratio of Common Equity Tier 1 (“CET1”) to
risk-weighted assets of 4.5%, plus a 2.5% capital conservation buffer (the “CCB”) (effectively resulting in a
minimum ratio of CET1 to risk-weighted assets of 7.0%); (ii) a minimum ratio of Tier 1 capital to risk-weighted
assets of 6.0%, plus the CCB (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (iii) a minimum ratio
of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the CCB (effectively resulting in a
minimum total capital ratio of 10.5%); and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1
capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each
quarter of the month-end ratios for the quarter).

Basel III provides for a number of deductions from and adjustments to CET1, including the deduction of
mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in
non-consolidated financial entities if any one such category exceeds 10.0% of CET1 or if all such categories in the
aggregate exceed 15.0% of CET1.

In addition to Basel III, the Dodd-Frank Act requires or permits federal banking agencies to adopt regulations
affecting capital requirements in a number of respects, including potentially more stringent capital requirements for
systemically important financial institutions. Accordingly, the regulations ultimately applicable to the Company
may differ substantially from Basel III. Requirements of higher capital levels or higher levels of liquid assets could
adversely impact the Company’s net income and return on equity.

In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit
loss allowances under the Current Expected Credit Losses (“CECL”). The rule revised the federal banking
agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for
inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-
one adverse effects on regulatory capital that may result from the adoption of the CECL model. Due to COVID-19,
federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital
resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented
CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital
relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year
transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. On
August 26, 2020, the federal banking agencies issued a final rule that made certain technical changes to the interim
final rule, including expanding the pool of eligible institutions. The changes in the final rule applied only to those
banking organizations that elected the CECL transition relief provided for under the rule. The Company did not
elect this transition relief.

Economic Growth, Regulatory Relief and Consumer Protection Act

On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory
Relief Act”) was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased
restrictions on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding
companies with consolidated assets of less than $100 billion, including Farmers, are no longer subject to enhanced
prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated
assets of less than $100 billion,
including Farmers, from certain record-keeping, reporting and disclosure
requirements.

Volcker Rule

In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision
of the Dodd-Frank Act (the “Volcker Rule”). The Volcker Rule places limits on the trading activity of insured
depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading
activity includes a purchase or sale as principal of a security, derivative, commodity future or option on any such
instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule
exempts specified U.S. Government, agency and/or municipal obligations, and it exempts trading conducted in

8

certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a
fiduciary on behalf of customers,
to satisfy a debt previously contracted, repurchase and securities lending
agreements and risk-mitigating hedging activities.

The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships

with, a hedge fund or private equity fund, with a number of exceptions.

In July 2019, the federal bank regulatory agencies that adopted the Volcker Rule adopted a final rule to
exempt certain community banks, including Farmers, from such rule consistent with the Regulatory Relief Act.
Under the final rule, community banks with $10 billion or less in total consolidated assets and total trading assets
and liabilities of 5.0% or less of total consolidated assets were excluded from the restrictions of the Volcker Rule.
On June 25, 2020, the federal bank regulatory agencies also finalized a rule modifying the Volcker Rule’s
prohibition on banking entities investing in or sponsoring covered funds. Such rule permits certain banking entities
to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was
originally intended to address.

The Bank does not engage in any of the trading activities or own any of the types of funds prohibited by the

Volcker Rule.

Prompt Corrective Action

The federal banking agencies have established a system of prompt corrective action to resolve certain of the
problems of undercapitalized institutions. This system is based on five capital level categories for insured
depository
“significantly
“adequately
undercapitalized,” and “critically undercapitalized.”

“undercapitalized,”

capitalized,”

capitalized,”

institutions:

“well

The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a
bank’s capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90
days after it becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the
concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise
may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well
capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher
than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must
guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.

Federal law permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital
stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank’s capital stock.
This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank
to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock owned by any assessed
shareholder failing to pay the assessment. As the sole shareholder of Farmers Bank, the Company is subject to such
provisions.

Deposit Insurance

Substantially all of the deposits of the Bank are insured up to applicable limits by the DIF of the FDIC, and
Farmers Bank is assessed deposit insurance premiums to maintain the DIF. The general insurance limit is $250,000
per separately insured depositor. This insurance is backed by the full faith and credit of the U.S. Government.
Insurance premiums for each insured institution are determined based upon the institution’s capital level and
supervisory rating provided to the FDIC by the institution’s primary federal regulator and other information deemed
by the FDIC to be relevant to the risk posed to the DIF by the institution. The assessment rate is then applied to the
amount of the institution’s deposits to determine the institution’s insurance premium.

The FDIC assesses quarterly deposit

insurance premiums on each insured institution based on risk
characteristics of the institution and may also impose special assessments in emergency situations. The premiums
fund the DIF. Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio

9

(“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits. In 2016, the FDIC adopted
final rules designed to meet the statutory minimum DRR of 1.35%. The Dodd-Frank Act requires the FDIC to offset
the effect on institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35%
from the former statutory minimum of 1.15%. Although the FDIC’s new rules reduced assessment rates on all
banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reaches
1.35%. The rules also provide assessment credits to banks with assets of less than $1 billion for the portion of their
assessments that contribute to the increase of the DRR to 1.35%. The rules further changed the method of
determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure
that banks taking on greater risks pay more for deposit insurance than banks that take on less risk. The DRR
reached 1.40% on June 30, 2019, but as of June 30, 2020, the DRR fell below the statutory minimum to 1.30%.
This resulted in the FDIC adopting a restoration plan that requires the restoration of the DRR to 1.35% by
September 30, 2028. The restoration plan maintained the scheduled assessment rates for all insured institutions.

As insurer, the FDIC is authorized to conduct examinations of and to require reporting by federally-insured
institutions.
It also may prohibit any federally-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the DIF. The FDIC also has the authority to take
enforcement actions against insured institutions.
Insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or written agreement entered into with the FDIC. The management of the Bank does not know of any
practice, condition or violation that might lead to termination of deposit insurance.

Fiscal and Monetary Policies

The Company’s business and earnings are affected significantly by the fiscal and monetary policies of the
federal government and its agencies. The Company is particularly affected by the policies of the Federal Reserve
Board, which regulates the supply of money and credit in the United States in order to influence general economic
conditions, primarily through open market operations in U.S. government securities, changes in the discount rate on
bank borrowings and changes in the reserve requirements against depository institutions’ deposits. These policies
and regulations significantly affect the overall growth and distribution of loans, investments and deposits, as well as
interest rates charged on loans and paid on deposits.

The monetary policies of the Federal Reserve Board have had a significant effect on operations and results of
financial institutions in the past and are expected to have significant effects in the future. In view of the changing
conditions in the economy, the money markets and activities of monetary and fiscal authorities, Farmers can make
no predictions as to future changes in interest rates, credit availability or deposit levels.

Community Reinvestment Act

The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent
with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit
needs of its market areas by, among other things, providing credit to low and moderate-income individuals and
communities. Depository institutions are periodically examined for compliance with the CRA and are assigned
ratings. In order for a bank holding company to commence any new activity permitted by the BHCA, or to acquire
any company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of
the bank holding company must have received a rating of at least “satisfactory” in its most recent examination under
the CRA. Furthermore, banking regulators take into account CRA ratings when considering approval of a proposed
transaction. Farmers received a rating of “satisfactory” in its most recent CRA examination.

Customer Privacy

Farmers Bank is subject to regulations limiting the ability of financial institutions to disclose non-public
information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies
to consumers and, in some circumstances, allow customers to prevent disclosure of certain personal information to a
nonaffiliated third party. These regulations affect how consumer information is transmitted and conveyed to outside
vendors.

10

Anti-Money Laundering and the USA Patriot Act

The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) and its related regulations require insured depository
institutions, broker-dealers and certain other financial institutions to have policies, procedures and controls to detect,
prevent, and report money laundering and terrorist financing. The USA Patriot Act and its regulations also provide
for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions,
as well as among financial institutions, for counter-terrorism purposes. Failure of a financial institution to maintain
and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the
relevant laws or regulations, could have serious legal and reputational consequences for the institution. In addition,
federal banking agencies are required, when reviewing bank holding company acquisition and bank merger
applications, to take into account the effectiveness of the anti-money laundering policies, procedures and controls of
the applicants.

Corporate Governance

The Sarbanes-Oxley Act of 2002 effected broad reforms to areas of corporate governance and financial
reporting for public companies under the jurisdiction of the Commission. The Company’s corporate governance
policies include an Audit Committee Charter, a Compensation Committee Charter, Corporate Governance and
Nominating Committee Charter and Code of Business Conduct and Ethics. The Board of Directors reviews the
Company’s corporate governance practices on a continuing basis. These and other corporate governance policies
have been provided previously to shareholders and are available, along with other information on Farmers’
corporate governance practices, on the Company’s website at www.farmersbankgroup.com.

As directed by Section 302(a) of the Sarbanes-Oxley Act, the Company’s chief executive officer and chief
financial officer are each required to certify that the Company’s Quarterly and Annual Reports do not contain any
untrue statement of a material fact. The rules have several requirements, including having these officers certify that:
they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the Company’s
internal controls, they have made certain disclosures about the Company’s internal controls to its auditors and the
audit committee of the Board of Directors and they have included information in the Company’s Quarterly and
Annual Reports about their evaluation and whether there have been significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the evaluation.

Executive and Incentive Compensation

In June 2010, the Federal Reserve Board, OCC and FDIC issued joint interagency guidance on incentive
compensation policies (the “Joint Guidance”) intended to ensure that the incentive compensation policies of banking
organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-
taking. This principles-based guidance, which covers all employees that have the ability to materially affect the risk
profile of an organization, either individually or as part of a group, is based upon the key principles that a banking
organization’s incentive compensation arrangements should: (i) provide incentives that do not encourage risk-taking
beyond the organization’s ability to effectively identify and manage risks; (ii) be compatible with effective internal
controls and risk management; and (iii) be supported by strong corporate governance, including active and effective
oversight by the organization’s board of directors.

Pursuant to the Joint Guidance, the Federal Reserve Board will review as part of a regular, risk-focused
examination process, the incentive compensation arrangements of financial institutions such as Farmers. Such
reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and
the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included
in reports of examination and deficiencies will be incorporated into the institution’s supervisory ratings, which can
affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against
an institution if its incentive compensation arrangements, or related risk-management control or governance
processes, pose a risk to the organization’s safety and soundness, and prompt and effective measures are not being
taken to correct the deficiencies.

11

The Dodd-Frank Act also provides shareholders the opportunity to cast a non-binding vote on executive
compensation practices, imposes new executive compensation disclosure requirements, and contains additional
considerations of the independence of compensation advisors.

The Coronavirus Aid, Relief, and Economic Security Act of 2020

In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the
“CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief measures.
Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such
as the Company and Farmers Bank, and have been implemented through rules and guidance adopted by federal
departments and agencies, including the U.S. Department of Treasury, the Federal Reserve Board and other federal
banking agencies, including those with direct supervisory jurisdiction over the Company and Farmers Bank.
Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect
to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as
industry-specific recovery procedures for COVID-19.
is possible that Congress will enact
supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable
in scope to the CARES Act. The Company is continuing to assess the impact of the CARES Act and other statues,
regulations and supervisory guidance related to COVID-19.

In addition,

it

The CARES Act amended the loan program of the Small Business Administration (the “SBA”), in which
Farmers participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (the “PPP”),
to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. In June
2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things, gave borrowers
additional time and flexibility to use PPP loan proceeds. After previously being extended by Congress, the
application deadline for PPP loans expired on May 31, 2021. No collateral or personal guarantees were required for
PPP loans.
In addition, neither the government nor lenders have been permitted to charge the recipients of PPP
loans any fees. As a participating lender in the PPP, Farmers continues to monitor legislative, regulatory, and
supervisory developments related thereto.

Future Legislation and Regulation

Various and significant legislation affecting financial institutions and the financial industry is from time to
time introduced in the U.S. Congress and state legislatures, as well as by regulatory agencies, and such legislation
may further change banking statutes and the operating environment of the Company in substantial and unpredictable
ways. Such initiatives may include proposals to expand or contract the powers of bank holding companies and
depository institutions or proposals to substantially change the financial institution regulatory system. With the
enactment and the continuing implementation of the Dodd-Frank Act and regulations thereunder, the nature and
extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable.

A change in legislation affecting financial institutions and the financial industry could increase or decrease the
cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon
whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing
regulations, would have on the financial condition or results of operations of the Company or any of its subsidiaries.
Farmers cannot predict the scope and timing of any such future legislation and, if enacted, the effect that it could
have on its business, financial condition or results of operations.

Also, such statutes, regulations and policies are continually under review by Congress and state legislatures
and federal and state regulatory agencies and are subject to change at any time, particularly in the current economic
and regulatory environment. Any such change in statutes, regulations or regulatory policies applicable to the
Company could have a material effect on the business of the Company.

12

Information About Our Executive Officers

The names, ages and positions of Farmers’ executive officers as of March 1, 2022:

Name
Troy Adair

Timothy Carney

James M. Gasior

Kevin J. Helmick
Brian E. Jackson
Mark A. Nicastro

Michael Oberhaus
Joseph W. Sabat
Timothy Shaffer
Amber Wallace Soukenik

Mark J. Wenick

Age
55

56

62

50
52
51

45
61
60
56

62

Title
Executive Vice President, Secretary and Treasurer of Farmers and Senior
Executive Vice President and Chief Financial Officer of Farmers Bank
Senior Executive Vice President and Chief Banking Officer of Farmers
and Farmers Bank
Senior Executive Vice President and Corporate Development Officer of
Farmers Bank
President and Chief Executive Officer of Farmers and Farmers Bank
Senior Vice President and Chief Information Officer of Farmers Bank
Senior Vice President and Chief Human Resources Officer of Farmers
Bank
Senior Vice President and Chief Risk Officer of Farmers Bank
Vice President and Chief Accounting Officer of Farmers Bank
Senior Vice President and Chief Credit Officer of Farmers Bank
Executive Vice President and Chief Retail/Marketing Officer of Farmers
Bank
Senior Vice President and Chief Wealth Management Officer of Farmers
Bank

Officers are generally elected annually by the Board of Directors. The term of office for all the above

executive officers is for the period ending with the next annual meeting.

Principal Occupation and Business Experience of Executive Officers

Mr. Adair has served as Executive Vice President, Secretary, Treasurer and Chief Financial Officer of
Farmers and Executive Vice President and Chief Financial Officer of Farmers Bank since August 2021 when he
replaced Carl Culp, the former Chief Financial Officer, who retired. Mr. Adair joined Farmers in June of 2021 as
Executive Vice President of Finance. Prior to that time, Mr. Adair was the treasurer of Home Savings Bank/Premier
Bank from February 2016 through June of 2021 and Director of Risk Management from February of 2002 to
February of 2016. Mr. Adair has 34 years of experience in finance and accounting in the banking industry.

Mr. Carney was appointed Senior Executive Vice President and Chief Banking Officer of Farmers and
Farmers Bank in November 2021 after the completion of the Merger with Cortland. Prior to joining Farmers, Mr.
Carney, served as Senior Vice President, Chief Operations Officer and Secretary of Cortland since November 2009.
In addition, Mr. Carney was a director of Cortland Bancorp from 2009 until November 2021. Prior to joining
Cortland, Mr. Carney was employed by Ernst & Young and had experience in all financial activities and financial
reporting, audit preparation, budgeting, and knowledge of government regulatory requirements. Mr. Carney is
currently a board member of the Foundation for Eastern Gateway Community College.

Mr. Gasior was appointed Senior Executive Vice President and Corporate Development Officer of Farmers
Bank in November 2021 after the completion of the Merger with Cortland. Prior to the merger, Mr. Gasior served
as the President, Chief Executive Officer and a Director of Cortland Bancorp and The Cortland Savings and
Banking Company since 2009. He previously served as Senior Vice President, Chief Financial Officer and
Corporate Secretary of Cortland from November 2005 to October 2009 and held various positions with Cortland
from March 1991 to October 2005.
Prior to joining Cortland, Mr. Gasior was employed by Ernst & Young, a
professional service firm providing audit, tax and advisory services. Mr. Gasior is a Certified Public Accountant, a
member of the American Institute of CPAs and a member of the Ohio Society of CPAs.

Mr. Helmick is the President and Chief Executive Officer of Farmers and Farmers Bank, a position he has
held since November 2013. Prior to becoming President, Mr. Helmick was Secretary of Farmers and Executive
Vice President – Wealth Management and Retail Services of Farmers Bank since January 2012. Mr. Helmick has

13

been with the Company for 27 years and has a retail and investment background, including an MBA and CFP
designation. From 1997 through 2008, Mr. Helmick served as the Vice President and Program Manager for Farmers
Investments.
In 2008, Mr. Helmick was promoted to Senior Vice President of Wealth Management and Retail
Services where he was responsible for the management and oversight of the retail investment area of Farmers Bank,
Farmers Insurance, and all branch sales and operational functions.

Mr. Jackson is the Senior Vice President and Chief Information Officer of Farmers Bank, a position he has
held since May 2009. Prior to coming to the Company, Mr. Jackson was Assistant Vice President and Information
Technology Manager with Home Savings Bank since 1993. He has over 29 years of experience in the IT field.
Mr. Jackson was appointed as an executive officer in 2012.

Mr. Nicastro is the Senior Vice President and Chief Human Resources Officer of Farmers Bank. Mr. Nicastro
was appointed to that position in 2017 and previously served as Director of Human Resources since joining Farmers
in July 2009. Prior to that, Mr. Nicastro served as Staffing and Compliance Manager for Huntington National Bank
(2007-2008) and Regional Human Resources Manager for Sky Bank from 2004 until 2007. Mr. Nicastro has an
MBA, and has more than 24 years of experience in Human Resource Management from both large multi-national
banks and regional community banks. He was appointed as an executive officer in 2012.

Mr. Oberhaus is currently the Senior Vice President and Chief Risk Officer of Farmers Bank. Mr. Oberhaus
joined Farmers National Bank as part of the merger with First National Bank of Orrville in June of 2015 as the
company’s Enterprise Risk Manager. Prior to the merger Mr. Oberhaus served as the SVP and Chief Risk Officer of
First National Bank of Orrville and brings more than 24 years of experience in banking.

Mr. Sabat is the Vice President and Chief Accounting Officer of Farmers Bank. Mr. Sabat was appointed to
that position in June 2021 and previously served as Controller of Farmers Bank since April 2006. Prior to coming to
the Company, Mr. Sabat was with a regional public accounting firm. Mr. Sabat has 26 years of experience in the
accounting, finance and auditing fields. He is a certified public accountant and was appointed as an executive
officer in 2012.

Mr. Shaffer serves as Chief Credit Officer and has held that title since February of 2021. Previously, Mr.
Shaffer served as Regional President and held that title from July of 2015 through 2020. Mr. Shaffer also served as
the Director of Commercial Banking & Private Client Services.
In October of 2011, Mr. Shaffer joined Farmers
Bank as the Commercial Lending Manager, overseeing commercial lending, small business lending and treasury
management. Mr. Shaffer has over 32 years of Banking and Lending experience in the Mahoning Valley
market. Mr. Shaffer was appointed as an executive officer in 2014.

Ms. Wallace Soukenik has served as Executive Vice President and Chief Retail/Marketing Officer for Farmers
Bank since November 2013. In August 2008, Ms. Wallace Soukenik joined Farmers Bank as Senior Vice President
and Director of Marketing. She has 32 years of experience in the marketing field. Prior to joining the Company,
Ms. Wallace Soukenik served as the Assistant Vice President of Marketing and Physician Relations at Trumbull
Memorial Hospital, where she managed a $14 million endowment, a $1.5 million marketing budget and all
physician contracts. She was appointed as an executive officer in 2012.

Mr. Wenick is Senior Vice President and Chief Wealth Management Officer of Farmers Bank. Prior to
coming to Farmers National Bank in 2017, Mr. Wenick was regional president of Chemical Bank for 3 years. Prior
to that, Mr. Wenick spent 5 years in local bank investment and trust positions. He brings more than 39 years of
financial expertise in the area of wealth management.

Item 1A. Risk Factors.

The following are certain risk factors that could materially and negatively affect our business, results of
operations, cash flows or financial condition. These risk factors should be considered in connection with evaluating
the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our
actual results or financial condition to differ materially from those projected in forward-looking statements. The
risks that are discussed below are not the only ones we face.
If any of the following risks occur, our business,
financial condition or results of operations could be negatively affected. Additional risks that are not presently

14

known or that we presently deem to be immaterial could also have a material, adverse impact on our business,
financial condition or results of operations.

Risks Relating to General Economic and Market Conditions, including COVID-19 Pandemic

Changes in economic, political, and market conditions may adversely affect our industry and our business.

Our success depends in part on national and local economic, political, and market conditions as well as
governmental monetary and other financial policies. Conditions such as inflation, recession, unemployment,
changes in interest rates, money supply, governmental fiscal policies and other factors beyond our control may
adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. Because we have a
significant amount of real estate loans, additional decreases in real estate values could adversely affect the value of
property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy
may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which
would have an adverse impact on our earnings. If during a period of reduced real estate values we are required to
liquidate the collateral securing loans to satisfy the debt or to increase our allowance for loan losses, it could
materially reduce our profitability and adversely affect our financial condition. The majority of our loans are to
individuals and businesses in Northeast Ohio. Consequently, further significant declines in the economy in the area
could have a material adverse effect on our business, financial condition or results of operations.
It is uncertain
when the negative credit trends in our market will reverse, and, therefore, future earnings are susceptible to further
declining credit conditions in the market in which we operate.

The economic impact of COVID-19 or any other pandemic could adversely affect our business, financial

condition and results of operations.

Our business is dependent upon the willingness and ability of our customers to conduct banking and other
financial transactions. The spread of a highly infectious or contagious disease, such as COVlD-19, has negatively
impacted global, national and local economies, which in turn has disrupted the businesses, activities, and operations
of our customers, as well as our business and operations. Moreover, the COVID-19 outbreak continues to cause
significant disruption in the financial markets both globally and in the United States. Furthermore, the pandemic
could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses,
particularly if businesses remain required to operate at diminished capacities or are required to close again, the
impact on the global, national and local economies worsen, or more customers draw on their lines of credit or seek
additional loans to help finance their businesses. Our business operations may also be disrupted if significant
portions of our workforce are unable to work effectively, including because of illness, quarantines, government
actions, or other restrictions in connection with COVID-19.

Given the ongoing and dynamic nature of COVID-19, it is difficult to predict the full impact of COVID-19,
including new variants thereof, on our business, financial condition, and result of operations. The extent of such
impact will depend on future developments, which are highly uncertain. Among the factors outside of our control
that may result in a significant and/or sustained decrease in business and/or cause our customers to be unable to meet
existing payment or other obligations to us include:

•

•

•

•

•

•

the outbreak, duration and severity of variants;

the efficacy and deployment of vaccines and the potential development of more contagious or vaccine-
resistant variants;

the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect
to employment, wages and benefits, commercial activity, consumer spending and real estate market values;

declines in collateral values for loans;

further political, legal and regulatory actions and policies in response to the pandemic; and

the ability of our employees and third-party vendors to continue to work effectively during the course of the
pandemic.

The spread of COVID-19, including new variants thereof, has also caused us to modify our business practices,
including employee travel, employee work locations, and cancellation of physical participation in meetings, events

15

and conferences. Further, technology in employees’ homes may not be as robust as in our offices and could cause
the networks, information systems, applications, and other tools available to such employees to be more limited or
less reliable. The continuation of these work-from-home measures also introduces additional operational risk,
including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could
expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any
impacted customers.

Although the economy has made a slight recovery and the impact to our lines of business has been less than
material to date, the spread of new variants of COVID-19 could further impact our lines of business or negatively
impact the business and operations of third-party service providers who perform critical services for us. Further,
even after the COVID-19 pandemic subsides, the U.S. economy will likely require time to recover, the length of
which is unknown and during which the United States may experience a recession or market correction. Our
business could be materially and adversely affected by such recession or market correction.

We continue to closely monitor COVID-19 and related risks as they evolve. To the extent the effects of
COVID-19 adversely impact our business, financial condition, liquidity or results of operations, it may also have the
effect of heightening many of the other risks described in this Item.

Adverse changes in the ability or willingness of our customers to meet their repayment obligations to the

Company could adversely impact our liquidity, financial condition and results of operations.

The impact of the U.S. elections on the regulatory landscape, capital markets, and the response to the COVID-
19 pandemic, including whether there will be any further economic stimulus from the federal government, could
negatively impact our financial results. Our business consists mainly of making loans to salaried people or other
wage earners who generally depend on their earnings to meet their repayment obligations, and our ability to collect
on loans depends on the willingness and repayment ability of our customers. Adverse changes in the ability or
willingness of a significant portion of our customers to repay their obligations to the Company, whether due to
changes in general economic, political or social conditions, the cost of consumer goods, interest rates, natural
disasters, acts of war or terrorism, prolonged public health crisis or a pandemic, such as COVID-19, or other causes,
or events affecting our customers such as unemployment, major medical expenses, bankruptcy, divorce or death,
could have a material effect on our liquidity, financial condition and results of operations.

We maintain an allowance for loan losses in our financial statements at a level considered adequate by
Management to absorb probable loan losses inherent in the loan portfolio as of the balance sheet date, based on
estimates and assumptions at that date. However, the amount of actual future loan losses we may incur is susceptible
to changes in economic, operating and other conditions within our various local markets, which may be beyond our
control, and such losses may exceed current estimates. Although Management believes that the Company’s
allowance for credit losses is adequate to absorb losses on any existing loans that may become uncollectible, we
cannot estimate loan losses with certainty, and we cannot provide any assurances that our allowance for loan losses
will prove sufficient to cover actual credit losses in the future. Credit losses in excess of our reserves may adversely
affect our financial condition and results of operations.

In any event, any reduced liquidity could negatively impact our ability to be able to fund loans, or to pay the

principal and interest on any of our outstanding debt securities at any time, including when due.

Changes in interest rates could adversely affect our income and financial condition.

Our earnings and cash flow are dependent upon our net interest income. Net interest income is the difference
between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser
extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily of
deposits and wholesale borrowings). Our level of net interest income is primarily a function of the average balance
of our interest-earning assets, the average balance of our interest-bearing liabilities and the spread between the yield
on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our
interest-earning assets and our interest-bearing liabilities, which, in turn, are impacted by external factors, such as
the local economy, competition for loans and deposits, the monetary policy of the Federal Reserve Board and market
interest rates.

16

Interest rates are beyond our control, and they fluctuate in response to general economic conditions and the
policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in
monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of
investments, the generation of deposits and the rates received on loans and investment securities and paid on
deposits. While we have taken measures intended to manage the risks of operating in a changing interest rate
environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk. See
additional interest rate risk discussion under the Market Risk section found in Item 7A of this Annual Report on
Form 10-K.

Defaults by another larger financial institution could adversely affect financial markets generally.

The commercial soundness of many financial institutions may be closely interrelated as a result of credit,
trading, clearing or other relationships between institutions. As a result, concerns about, or a default or threatened
default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by
other institutions.
This is sometimes referred to as “systemic risk” and may adversely affect financial
intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we and
our subsidiaries interact on a daily basis, and therefore could adversely affect our business, financial condition or
results of operations.

A transition away from the London Interbank Offered Rate (“LIBOR”) as a reference rate for financial

instruments could negatively affect our income and expenses and the value of various financial instruments.

LIBOR is used extensively in the United States and globally as a benchmark for various commercial and
financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives.
LIBOR is set based on interest rate information reported by certain banks, which may stop reporting such
information after 2021. On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”) announced
that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. On November 30, 2020, to
facilitate an orderly LIBOR transition, the OCC, the FDIC, and the Federal Reserve Board jointly announced that
entering into new contracts using LIBOR as a reference rate after December 31, 2021, would create a safety and
soundness risk. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by
any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-
month LIBOR, and immediately after June 30, 2023, in the case of the remaining LIBOR settings.
In the United
States, efforts to identify a set of alternative U.S. dollar reference interest rates are ongoing, and the Alternative
Reference Rate Committee (“ARRC”) has recommended the use of a Secured Overnight Funding Rate (“SOFR”).
SOFR is different from LIBOR in that it is a backward looking secured rate rather than a forward-looking unsecured
rate.

These differences could lead to a greater disconnect between our costs to raise funds for SOFR as compared to
LIBOR. For cash products and loans, ARRC has also recommended Term SOFR, which is a forward looking SOFR
based on SOFR futures and may in part reduce differences between SOFR and LIBOR. There are operational
issues, which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across
the industry. These consequences cannot be entirely predicted and could have an adverse impact on the market
value for or value of LIBOR-linked securities, loans, derivatives over loans and other financial obligations or
extensions of credit.

We have limited exposure to LIBOR, with total exposure as of December 31, 2021 of approximately $131.6
million. We do not believe the change to a benchmark like SOFR will have a material impact on our financial
condition, results of operations or cash flows.

17

Risks Related to Our Business

We extend credit to a variety of customers based on internally set standards and judgment. We manage
credit risk through a program of underwriting standards, the review of certain credit decisions and an on-going
process of assessment of the quality of credit already extended. Our credit standards and on-going process of
credit assessment might not protect us from significant credit losses.

We take credit risk by virtue of making loans, extending loan commitments and letters of credit and, to a
lesser degree, purchasing non-governmental securities. Our exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize “in-market” lending, while avoiding highly leveraged transactions
as well as excessive industry and other concentrations. Our credit administration function employs risk management
techniques to ensure that loans adhere to corporate policy and problem loans are promptly identified. While these
procedures are designed to provide us with the information needed to implement policy adjustments where
necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in
avoiding undue credit risk.

We have significant exposure to risks associated with commercial real estate and residential real estate in

our primary markets.

As of December 31, 2021, approximately 75.9% of our loan portfolio consisted of commercial real estate and
residential real estate loans,
including real estate development, construction and residential and commercial
mortgage loans. Consequently, real estate-related credit risks are a significant concern for us. The adverse
consequences from real estate-related credit risks tend to be cyclical and are often driven by national economic
developments that are not controllable or entirely foreseeable by us or our borrowers.

Our business depends significantly on general economic conditions in the State of Ohio. Accordingly, the
ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly
affected by economic conditions in the regions we serve or by changes in the local real estate markets. A significant
decline in general economic conditions caused by inflation, recession, unemployment, acts of terrorism or other
factors beyond our control could have an adverse effect on our business, financial condition or results of operations.

Our indirect lending exposes us to increased credit risks.

A portion of our current lending involves the purchase of consumer automobile installment sales contracts
from automobile dealers located in Northeastern Ohio. These loans are for the purchase of new or late model used
cars. We serve customers over a broad range of creditworthiness, and the required terms and rates are reflective of
those risk profiles. While these loans have higher yields than many of our other loans, such loans involve significant
risks in addition to normal credit risk. Potential risk elements associated with indirect lending include the limited
personal contact with the borrower as a result of indirect lending through dealers, the absence of assured continued
employment of the borrower, the varying general creditworthiness of the borrower, changes in the local economy
and difficulty in monitoring collateral. While indirect automobile loans are secured, such loans are secured by
depreciating assets and characterized by loan to value ratios that could result in us not recovering the full value of an
outstanding loan upon default by the borrower. Delinquencies, charge-offs and repossessions of vehicles in this
portfolio are always concerns.
If general economic conditions worsen, we may experience higher levels of
delinquencies, repossessions and charge-offs.

Commercial and industrial loans may expose us to greater financial and credit risk than other loans.

As of December 31, 2021, approximately 15.8% of our loan portfolio consisted of commercial and industrial
loans. Commercial and industrial loans generally carry larger loan balances and can involve a greater degree of
financial and credit risk than other loans. Any significant failure to pay on time by our customers would hurt our
earnings and cause a significant increase in non-performing loans. The increased financial and credit risk associated
with these types of loans are a result of several factors, including the concentration of principal in a limited number
of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing
properties and the increased difficulty of evaluating and monitoring these types of loans.
In addition, when
underwriting a commercial or industrial loan, we may take a security interest in commercial real estate, and, in some
instances upon a default by the borrower, we may foreclose on and take title to the property, which may lead to

18

potential financial risks. An increase in non-performing loans could result in a net loss of earnings from these loans,
an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material
adverse effect on our business, financial condition or results of operations.

Our allowance for credit losses may not be adequate to cover the expected, lifetime losses in our loan

portfolio.

losses requires management

We maintain an allowance for credit losses that we believe is a reasonable estimate of the expected losses
within the CECL model, based on management’s quarterly analysis of our loan portfolio. The determination of the
allowance for credit
the
collectability of our loans, including the creditworthiness of our borrowers and the value of real estate and other
assets serving as collateral for the repayment of loans. Additional information regarding our allowance for credit
losses methodology and the sensitivity of the estimates can be found in the discussion of “CRITICAL
ACCOUNTING POLICIES” included in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of this Annual Report on Form 10-K.

to make various assumptions and judgments about

Our estimates of future credit losses is susceptible to changes in economic, operating and other conditions,
including changes in regulations and interest rates, which may be beyond our control, and the losses may exceed
current estimates. We cannot be assured of the amount of timing of losses, nor whether the allowance for credit
losses will be adequate in the future.

If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover the
expected losses from our loan portfolio, resulting in the need for additions to the allowance for credit losses which
could have a material adverse impact on our financial condition and results of operations.
In addition, bank
regulators periodically review our allowance for credit losses as part of their examination process and may require
management to increase the allowance or recognize further loan charge-offs based on judgments different than those
of management.

On June 16, 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13 “Financial Instruments –
Credit Losses,” which replaced the incurred loss model with the CECL model, an expected loss model. The new
accounting guidance was to have been adopted by the Company as of January 1, 2020. However, Section 4014 of
the CARES Act provided financial institutions with optional temporary relief from having to comply with the CECL
methodology which would have expired on December 31, 2020, and Section 540 of the Consolidated Appropriations
Act, 2021, further extended the relief period to the earlier of the first day of the fiscal year that begins after the date
on which the national emergency concerning COVID-19 terminates or January 1, 2022. Following the approval of
the CARES Act and Consolidated Appropriations Act, 2021, the Company elected to delay the implementation of
CECL until January 1, 2021.

The new accounting guidance under the CECL model requires banks to record, at the time of origination,
credit losses expected throughout the life of financial assets measured at amortized cost, including loan receivables,
debt securities and reinsurance receivables, and off-balance sheet credit exposures not accounted for as insurance
(loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investments
in leases recognized by a lessor. Under the CECL model, we are required to use historical information, current
conditions and reasonable and supportable forecasts to estimate the expected credit losses. If the methodologies and
assumptions we use in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may not
be sufficient, resulting in the need for additional allowance for credit losses to be established, which could have a
material adverse impact on our financial condition and results of operations.

The adoption of the CECL model by the Company resulted in a onetime adjustment to equity in the amount
of $1.9 million, net of tax. As a result of the implementation of the CECL model, the time horizon over which we
are required to estimate future credit losses expanded, which could result in increased volatility in future provisions
for credit losses. We may also experience a higher or more volatile provision for credit losses due to higher levels
of nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled
loan payments.

19

Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios
and increases in our allowance for credit losses, particularly if businesses remain closed or operate at reduced
capacities, the impact on the national economy continues to worsen, or more clients draw on their lines of credit or
seek additional loans to help finance their businesses. Small and mid-sized businesses make up a significant portion
of our commercial loan portfolio and are particularly vulnerable to adverse financial effects of the COVID-19
pandemic due to their increased reliance on continuing cash flow to fund day-to-day operations. Although federal
government programs such as the Paycheck Protection Program (“PPP”) that are designed to support individuals,
households and businesses impacted by the economic disruptions caused by the COVID-19 pandemic, have sought,
and may further seek, to provide relief to these types of businesses, there can be no assurance that these programs
will succeed. As of December 31, 2021, we hold and service PPP loans. While a large number of our PPP
borrowers have applied for and received full or partial forgiveness of their loan obligations, we still have credit risk
on the remaining PPP loans in the event that a determination is made by the SBA that there is a deficiency in the
manner in which a loan was originated, funded or serviced, including any issue with the eligibility of a borrower to
In such a case, the SBA may deny its liability under the guaranty, reduce the amount of the
receive funding.
guaranty, or, if the SBA has already paid under the guaranty, seek recovery of any related loss from us.

We are subject to certain risks with respect to liquidity.

“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our
obligations, including commitments to originate loans, to repay our wholesale borrowings and other liabilities and to
satisfy the withdrawal of deposits by our customers. Our primary source of liquidity is our core deposit base, which
is raised through our retail branch system. Core deposits – savings and money market accounts, time deposits less
than $250 thousand and demand deposits—comprised approximately 96.1% of total deposits at December 31, 2021.
Additional available unused wholesale sources of liquidity include advances from the FHLB, issuances through
dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is further
provided by unencumbered, or unpledged, investment securities that totaled $941.3 million at December 31, 2021.
An inability to raise funds through deposits, borrowings, the sale or pledging as collateral of loans and other assets
could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to
finance our activities could be impaired by factors that affect us specifically or the financial services industry in
general. Factors that could negatively affect our access to liquidity sources include a decrease in the level of our
business activity due to a market downturn or negative regulatory action against us. Our ability to borrow could also
be impaired by factors that are not specific to us, such as severe disruption of the financial markets or negative news
and expectations about the prospects for the financial services industry as a whole, as evidenced by recent turmoil in
the domestic and worldwide credit markets.

20

Our business strategy includes continuing our growth plans. Our business, financial condition or results of

operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a profitable growth strategy both within our existing markets and in new
markets. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by
companies in significant growth stages of development. We cannot assure that we will be able to expand our market
presence in our existing markets or successfully enter new markets or that any such expansion will not adversely
affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on
our business, future prospects, financial condition or results of operations and could adversely affect our ability to
successfully implement our business strategy. Also, if we grow more slowly than anticipated, our operating results
could be materially adversely affected.

We may experience difficulties in integrating acquired businesses, or acquisitions may not perform as

expected.

We completed the acquisition of Cortland Bancorp in November of 2021. The successful integration of these
acquisitions depends on our ability to manage the operations and personnel of the acquired businesses. Integrating
operations is complex and requires significant efforts and expenses. Potential difficulties we may encounter as part
of the integration process include the following:

•

•

•

•

•

•

•

employees may voluntarily or involuntarily exit the Company because of the acquisitions;

our management team may have its attention diverted while trying to integrate the acquired
companies;

we may encounter obstacles when incorporating the acquired operations into our operations;

differences in business backgrounds, corporate cultures and management philosophies;

potential unknown liabilities and unforeseen increased expenses;

previously undetected operational or other issues; and

the acquired operations may not otherwise perform as expected or provide expected results.

Any of these factors could adversely affect each company’s ability to maintain relationships with customers,
suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the acquisition or
could reduce each company’s earnings or otherwise adversely affect our business and financial results after the
acquisition.

We may fail to realize all of the anticipated benefits of acquisitions, which could reduce our anticipated

profitability.

We expect that our acquisitions will result in certain synergies, business opportunities and growth prospects,
although we may not fully realize these expectations. Our assumptions underlying estimates of expected cost
savings may be inaccurate or general industry and business conditions may deteriorate. In addition, our growth and
operating strategies for acquired businesses may be different from the strategies that the acquired companies pursued.
If these factors limit our ability to integrate or operate the acquired companies successfully or on a timely basis, our
expectations of future results of operations, including certain cost savings and synergies expected to result from
acquisitions, may not be met.

We may not be able to attract and retain skilled people.

Our success depends, in large part, on our ability to attract and retain key people. Competition for the best
people in most activities in which we engage can be intense, and we may not be able to retain or hire the people we
want or need. In order to attract and retain qualified employees, we must compensate them at market levels. If we
are unable to continue to attract and retain qualified employees, or do so at rates necessary to maintain our
competitive position, our performance, including our competitive position, could suffer, and, in turn, adversely
affect our business, financial condition or results of operations.

21

Strong competition within our markets could reduce our ability to attract and retain business.

We encounter significant competition from banks, savings and loan associations, credit unions, mortgage
banks, and other financial service companies in our markets. Some of our competitors offer a broader range of
products and services than we can offer as a result of their size and ability to achieve economies of scale. Such
competition includes major financial companies whose greater resources may afford them a marketplace advantage
by enabling them to maintain more numerous banking locations and support extensive promotional and advertising
campaigns. Our ability to maintain our history of strong financial performance and return on investment to
shareholders will depend in part on our continued ability to compete successfully in our market. Our financial
performance and return on investment to shareholders also depends on our ability to expand the scope of available
financial services to our customers.
In addition to other banks, competitors include securities dealers, brokers,
investment advisors and finance and insurance companies. The increasingly competitive environment is, in part, a
result of changes in regulation, changes in technology and product delivery systems and the accelerating pace of
consolidation among financial service providers.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to utilize alternative methods to complete financial
transactions that historically have involved banks. For example, consumers can now maintain funds in brokerage
accounts or mutual funds that would have historically been held as bank deposits. Customers may also move money
out of bank deposits in favor of other investments, including digital or cryptocurrency. Consumers can also
complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The
process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer
deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost
deposits as a source of funds could have a material adverse effect on our business, financial condition or results of
operations.

We are exposed to operational risk.

Similar to any large organization, we are exposed to many types of operational risk, including reputational
risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by
employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled
computer or telecommunications systems. These risks are heightened in light of COVID-19.

Negative public opinion can result from our actual or alleged conduct in any number of activities, including
the
lending practices, corporate governance and acquisitions, social media and other marketing activities,
implementation of environmental, social, and governance practices, and from actions taken by government
regulators and community organizations in response to any of the foregoing. Negative public opinion could
adversely affect our ability to attract and keep customers, and could expose us to litigation and regulatory action,
and could have a material adverse effect on our stock price or result in heightened volatility.

22

Given the volume of transactions we process, certain errors may be repeated or compounded before they are
discovered and successfully rectified. Our necessary dependence upon automated systems to record and process our
transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation
of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our
operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses
or electrical or telecommunications outages), which may give rise to disruption of service to customers and to
financial loss of liability. We are further exposed to the risk that our external vendors may be unable to fulfill their
contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective
employees as we are) and to the risk that our (or our vendors’) business continuity and data security systems prove
to be inadequate.

Unauthorized disclosure of sensitive or confidential customer information, whether through a data breach
of our computer systems, third-party service providers’ systems, by cyber-attack or otherwise, could severely harm
our business.

As part of our financial institution business, we collect, process and retain sensitive and confidential client and
customer information on behalf of our subsidiaries and other third parties. Despite the security measures we have in
place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security
breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other
similar events.
If information security is breached, information could be lost or misappropriated, resulting in
financial loss or costs to us or damages to others. Any security breach involving the misappropriation, loss or other
unauthorized disclosure of confidential customer information, whether by us or by our vendors, could severely
damage our reputation, expose us to the risks of litigation and liability, or disrupt our operations, and have a material
adverse effect on our business, financial condition or results of operations. We also depend on third-party vendors
for components of our business infrastructure. While we have carefully selected these third-party vendors, we do
not control their operations. Further, the operations of our third-party vendors could fail or otherwise become
delayed as a result of COVID-19 and any new variants thereof. As such, our business and operations could be
adversely affected in the event these vendors are unable to perform their various responsibilities and we are unable
to timely and cost-effectively identify acceptable substitute providers.

We have not experienced any material loss relating to a cyber-attack or other information security breach, but
there can be no assurance that we will not suffer such attacks or attempted breaches, or incur resulting losses, in the
future. Our risks with respect to these threats remains heightened due to the evolving sophistication and frequency
of such threats. As cyber-attacks and other attempted information security threats continue to evolve, we may be
required to spend significant additional resources in efforts to modify and enhance our protective measures or in
investigating or remediating of security breaches or vulnerabilities.

We depend on our subsidiaries for dividends, distributions and other payments.

As a financial holding company, we are a legal entity separate and distinct from our subsidiaries. Our
principal source of funds to pay dividends on our common shares is dividends from these subsidiaries. Federal and
state statutory provisions and regulations limit the amount of dividends that our banking and other subsidiaries may
pay to us without regulatory approval. In the event our subsidiaries become unable to pay dividends to us, we may
not be able to pay dividends on our outstanding common shares. Accordingly, our inability to receive dividends
from our subsidiaries could also have a material adverse effect on our business, financial condition and results of
operations. Further discussion of our ability to pay dividends can be found under the caption “Dividends and
Transactions with Affiliates” in Item 1 of this Annual Report on Form 10-K.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available

when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our
operations. Federal banking agencies have proposed extensive changes to their capital requirements; including
raising required amounts and eliminating the inclusion of certain instruments from the calculation of capital. The
final form of such regulations and their impact on the Company is unknown at this time, but may require us to raise
additional capital. In addition, we may elect to raise capital to support our business or to finance acquisitions, if any,

23

or for other anticipated reasons. Our ability to raise additional capital, if needed, will depend on financial
performance, conditions in the capital markets, economic conditions and a number of other factors, including the
satisfaction or release of preemptive rights in the event of a common share offering, many of which are outside our
control. Therefore, there can be no assurance additional capital can be raised when needed or that capital can be
Impairment to our ability to raise capital may have a material adverse effect on our
raised on acceptable terms.
business, financial condition or results of operations.

We may not be able to adapt to technological change.

The financial services industry is continually undergoing rapid technological change with frequent
introductions of new technology-driven products and services. The effective use of technology increases efficiency
and enables financial institutions to better serve customers while reducing costs. Our future success depends, in part,
upon our ability to address customer needs by using technology to provide products and services that will satisfy
customer demands, as well as to create additional efficiencies in our operations. This could include the development,
implementation, and adaptation of digital or cryptocurrency, blockchain, and other “fintech” technology. We may
not be able to effectively implement new technology-driven products and services or be successful in marketing
these products and services to our customers. Failure to successfully keep pace with technological changes affecting
the financial services industry could negatively affect our growth, revenue and net income.

Risks Related to the Legal and Regulatory Environment

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

The FDIC maintains the Deposit Insurance Fund to resolve the cost of bank failures. Since late 2008, the FDIC
has taken various actions intended to maintain a strong funding position and restore reserve ratios of the Deposit
Insurance Fund. Those actions included increasing assessment rates for all insured institutions, requiring riskier
institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and
unsecured debt levels, and imposing special assessments. In addition, in 2011 the FDIC approved a final rule that
changed the deposit insurance assessment base and assessment rate schedule, adopted a new large-bank pricing
assessment scheme and set a target size for the Deposit Insurance Fund. The rule, as mandated by the Dodd-Frank
Act, finalized a target size for the Deposit Insurance Fund at 2 percent of insured deposits. The FDIC recently
adopted rules revising assessments in a manner that benefits banks with assets of less than $10 billion, although
there can be no assurance that such assessments will not change in the future.

We have a limited ability to control the amount of premiums we are required to pay for FDIC insurance. If
there are additional financial institution failures or other significant legislative or regulatory changes, the FDIC may
be required to increase assessment rates or take actions similar to those taken after 2008.
Increases in FDIC
insurance assessment rates may materially adversely affect our results of operations and our ability to continue to
pay dividends on our common shares at the current rate or at all.

Legislative or regulatory changes or actions, or significant litigation, could adversely impact us or the

businesses in which we are engaged.

The financial services industry is extensively regulated. We are subject to extensive state and federal
regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may
change from time to time and are primarily intended for the protection of consumers, depositors and the Deposit
Insurance Fund, and not to benefit our shareholders. Regulations affecting banks and financial services businesses
are undergoing continuous change, especially in light of COVID-19 and the stimulus programs issued in connection
therewith, and management cannot predict the effect of these changes. The impact of any changes to laws and
regulations or other actions by regulatory agencies may negatively impact us or our ability to increase the value of
our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement
activities, including the imposition of restrictions on the operation of an institution, the classification of assets by an
institution and the adequacy of an institution’s allowance for loan losses. Additionally, actions by regulatory
agencies or significant litigation against us could cause us to devote significant time and resources to defending our
business and may lead to penalties that materially affect our shareholders and us.

24

In light of conditions in the global financial markets and the global economy that occurred in the last decade,
regulators have increased their focus on the regulation of the financial services industry. Most recently, the United
States Congress and the federal agencies regulating the financial services industry have acted on an unprecedented
scale in responding to the stresses experienced in the global financial markets. Some of the laws enacted by the
United States Congress and regulations promulgated by federal regulatory agencies subject us, and other financial
institutions to which such laws and regulations apply, to additional restrictions, oversight and costs that may have an
impact on our business, results of operations or the trading price of our common shares.
In addition to laws,
regulations and actions directed at the operations of banks, proposals to reform the housing finance market consider
winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.

In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the
housing finance market consider winding down Fannie Mae and Freddie Mac, which could negatively affect our
sales of loans.

Even a reduction in regulatory restrictions could adversely affect our operations and our shareholders if less

restrictive regulation increases competition within the industry generally or within our markets.

Our results of operations, financial condition or liquidity may be adversely impacted by issues arising in
foreclosure practices, including delays in the foreclosure process, related to certain industry deficiencies, as well
as potential losses in connection with actual or projected repurchases and indemnification payments related to
mortgages sold into the secondary market.

Previous announcements of deficiencies in foreclosure documentation by several large seller/servicer financial
institutions have raised various concerns relating to mortgage foreclosure practices. The integrity of the foreclosure
process is important to our business, as an originator and servicer of residential mortgages. As a result of our
continued focus of concentrating our lending efforts in our primary markets in Ohio, as well as servicing loans for
the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac), we do not anticipate suspending foreclosure activities.
It is not clear at this time if any current or
future state or federal moratoriums on foreclosures related to COVID-19 concerns will cause significant issues for
the Bank. We previously reviewed our foreclosure procedures and concluded they are generally conservative in
nature and do not present the significant documentation deficiencies underlying other industry foreclosure problems.
Nevertheless, we could face delays and challenges in the foreclosure process arising from claims relating to industry
practices generally, which could adversely affect recoveries and our financial results, whether through increased
expenses of litigation and property maintenance, deteriorating values of underlying mortgaged properties or
unsuccessful litigation results generally.

In addition, in connection with the origination and sale of residential mortgages into the secondary market, we
make certain representations and warranties, which, if breached, may require us to repurchase such loans, substitute
other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. Although
we believe that our mortgage documentation and procedures have been appropriate and are generally conservative in
nature, it is possible that we will receive repurchase requests in the future and we may not be able to reach favorable
settlements with respect to such requests. It is therefore possible that we may increase our reserves or may sustain
losses associated with such loan repurchases and indemnification payments.

Environmental liability associated with commercial lending could have a material adverse effect on our

business, financial condition or results of operations.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business,
we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or
toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable
for remediation costs, as well as for personal injury and property damage. In addition, we own and operate certain
properties that may be subject to similar environmental liability risks.

25

Environmental laws and evolving regulation may require us to incur substantial expenses and may materially
reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws
and regulations or more stringent interpretations or enforcement policies with respect to existing laws or regulations
may increase our exposure to environmental liability. Although we have policies and procedures requiring the
performance of an environmental site assessment before initiating any foreclosure action on real property, these
assessments may not be sufficient to detect all potential environmental hazards. The remediation costs and any
other financial liabilities associated with an environmental hazard could have a material adverse effect on our
business, financial condition or results of operations.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders
with respect to our environmental, social and governance practices may impose additional costs on us or expose
us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related
to their environmental, social and governance (“ESG”) practices and disclosure.
Investor advocacy groups,
investment funds and influential investors are also increasingly focused on these practices, especially as they relate
Increased ESG-related
to the environment, health and safety, diversity, labor conditions and human rights.
compliance costs for us as well as among our third-party suppliers, vendors and various other parties within our
supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory
requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to
do business with certain partners, access to capital, and the price of our common shares.

Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require

charges to earnings, which could result in a negative impact on our results of operations.

Quarterly, the Company evaluates its security portfolio to see if any security has a fair value less that its
amortized cost. Once these securities are identified, the Company performs additional analysis to determine whether
the decline in fair value resulted from a credit loss or other factors. Under current accounting standards, goodwill and
certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for
impairment periodically or when impairment indicators are present. Assessment of goodwill and such other intangible
assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting
purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in
the period. Deferred tax assets are only recognized to the extent it is more likely than not they will be realized. Should
management determine it is not more likely than not that the deferred tax assets will be realized, a valuation allowance
with a change to earnings would be reflected in the period.

Changes and uncertainty in tax laws could adversely affect our performance.

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll,
financial institutions tax, withholding and ad valorem taxes. Changes to our taxes could have a material adverse
effect on our results of operations and, as described in the above risk discussion and below, the fair value of net
deferred tax assets.
In addition, our customers are subject to a wide variety of federal, state and local taxes.
Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products,
which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on
our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed
securities in which we have invested.

The Tax Cuts and Jobs Act, among other changes, imposed additional limitations on the federal income tax
deductions individual taxpayers may take for mortgage loan interest payments and for payments of state and local
taxes, including real property taxes. The Tax Cuts and Jobs Act also imposed additional limitations on the
deductibility of business interest expense and eliminated other deductions in their entirety, including deductions for
certain home equity loan interest payments. Such limits and eliminations may result in customer defaults on loans
we have made and decrease the value of mortgage-backed securities in which we have invested.

26

Anti-takeover provisions could delay or prevent an acquisition or change in control by a third party.

Provisions of the Ohio General Corporation Law, our Amended Articles of Incorporation, and our Amended
Code of Regulations, including a staggered board and supermajority voting requirements, could make it more
difficult for a third party to acquire control of us or could have the effect of discouraging a third party from
attempting to acquire control of us.

We may be a defendant from time to time in the future in a variety of litigation and other actions, which

could have a material adverse effect on our business, financial condition or results of operations.

Our subsidiaries and we may be involved from time to time in the future in a variety of litigation arising out of
our business. Our insurance may not cover all claims that may be asserted against us, and any claims asserted
against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or
settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our
business, financial condition or results of operations. In addition, we may not be able to obtain appropriate types or
levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms,
if at all.

Item 1B. Unresolved Staff Comments.

There are no matters of unresolved staff comments from the Commission staff.

Item 2. Properties.

At December 31, 2021, the Company conducted its business from its main office at 20 and 30 South Broad
Street, Canfield, Ohio and 48 full-service banking centers and 3 stand-alone loan production offices located in
northeast Ohio and western Pennsylvania. Farmers Trust operates five offices in northeast Ohio and Farmers
Insurance operates one office in Cortland, Ohio. Farmers also has a back-office operations facility located in Niles,
Ohio. See Note 8 to the Consolidated Financial Statements for additional information.

Item 3. Legal Proceedings.

In the normal course of business, the Company and its subsidiaries are at times subject to pending and
threatened legal actions, some for which the relief or damages sought are substantial. Although Farmers is not able
to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management
believes that, based on the information currently available, the outcome of such actions, individually or in the
aggregate, would not have a material adverse effect on the results of operations or stockholders’ equity of the
Company. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to
the results of operations in a particular future period as the time and amount of any resolution of such actions and its
relationship to the future results of operations are not known.

Item 4. Mine Safety Disclosures

Not applicable.

27

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of
Equity Securities

Market Information regarding the Company’s Common Shares.

Farmers’ common shares currently trade under the symbol “FMNB” on the Nasdaq Capital Market. Farmers
had 34,004,914 common shares outstanding and approximately 3,707 holders of record of common shares at March
1, 2022. The following table sets forth price ranges and dividend information for Farmers’ common shares for the
calendar quarters indicated. Quotations reflect
retail mark-up, mark-down or
commission, and may not represent actual transactions. Certain limitations and restrictions on the ability of Farmers
to continue to pay quarterly dividends are described under the caption “Capital Resources” in Item 7 of this Part II,
and under the caption “Dividends and Transactions with Affiliates” in Item 1 of Part I.

inter-dealer prices without

Quarter Ended
High........................................................................ $18.26
Low......................................................................... $13.03
Cash dividends paid per share ................................ $0.11

March 31,
2021

Quarter Ended
High........................................................................ $16.50
Low......................................................................... $10.32
Cash dividends paid per share ................................ $0.11

March 31,
2020

June 30,
2021
$17.99
$15.37
$0.11

June 30,
2020
$13.51
$9.82
$0.11

September 30,
2021
$16.03
$14.57
$0.11

December 31,
2021
$18.99
$15.69
$0.14

September 30,
2020
$12.59
$10.05
$0.11

December 31,
2020
$13.84
$10.55
$0.11

Purchases of Common Shares by Farmers.

On July 30, 2019, the Company announced that its Board of Directors authorized the purchase of up to
1,500,000 shares of its common stock in the open market or in privately negotiated transactions, from time to time
and subject to market and other conditions. This 2019 Repurchase Program supersedes the Company’s prior share
repurchase program initially approved in 2012 authorizing the purchase of up to 920,000 shares of common stock.
The 2019 Repurchase Program may be modified, suspended or terminated by the Company at any time. There were
10,851 shares repurchased during 2021, 942,967 shares repurchased during 2020, and 201,169 shares repurchased
during the course of 2019. There were 546,182 shares left to be repurchased under this plan at December 31, 2021.

Item 6. Reserved.

28

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following presents a discussion and analysis of Farmers’ financial condition and results of operations by
its management. The review highlights the principal factors affecting earnings and the significant changes in balance
sheet items for the years 2021, 2020 and 2019. Financial information for prior years is presented when appropriate.
The objective of this financial review is to enhance the reader’s understanding of the accompanying tables and
charts,
the consolidated financial statements, notes to financial statements and financial statistics appearing
elsewhere in this Annual Report on Form 10-K. Where applicable, this discussion also reflects management’s
insights of known events and trends that have or may reasonably be expected to have a material effect on Farmers’
business, financial condition or results of operations.

Cautionary Note Regarding Forward Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe
harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements
are not statements of historical fact, but rather statements based on Farmers’ current expectations, beliefs and
assumptions regarding the future of Farmers’ business, future plans and strategies, projections, anticipated events
and trends, its intended results and future performance, the economy and other future conditions. Forward-looking
statements are preceded by terms such as “will,” “would,” “should,” “could,” “may,” “expect,” “estimate,”
“believe,” “anticipate,” “intend,” “plan” “project,” or variations of these words, or similar expressions. Forward-
looking statements are not a guarantee of future performance, and actual future results could differ materially from
those contained in forward-looking information. Because forward-looking statements relate to the future, they are
subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which
are outside of our control. Numerous uncertainties, risks, and changes could cause or contribute to Farmers’ actual
results, performance, and achievements to be materially different from those expressed or implied by the forward-
looking statements. Factors that could cause or contribute to such differences include, without limitation, risks and
uncertainties detailed from time to time in Farmers’ filings with the Securities and Exchange Commission, including
without limitation the risk factors disclosed in Item 1A, “Risk Factors” of this Annual Report on Form 10-K.

Many of these factors are beyond the Company’s ability to control or predict, and readers are cautioned not to
put undue reliance on those forward-looking statements. The following, which is not intended to be an all-
encompassing list, summarizes several factors that could cause the Company’s actual results to differ materially
from those anticipated or expected in any forward-looking statement:

•

•

•

•

•

•

•

•

•

•

general economic conditions in markets where the Company conducts business, which could materially
impact credit quality trends;

effects of the COVID-19 pandemic on the local, national, and international economy, our organization and
employees, and our customers and suppliers and their business operations and financial condition,
including our customers’ ability to repay loans;

disruptions in the mortgage and lending markets and significant or unexpected fluctuations in interest rates
related to COVID-19 and governmental responses, including financial stimulus packages;

general business conditions in the banking industry;

the regulatory environment;

general fluctuations in interest rates;

demand for loans in the market areas where the Company conducts business;

rapidly changing technology and evolving banking industry standards;

competitive factors, including increased competition with regional and national financial institutions; and

new service and product offerings by competitors and price pressures.

Other factors not currently anticipated may also materially and adversely affect the Company’s results of
operations, cash flows and financial position. There can be no assurance that future results will meet expectations.

29

While the Company believes that the forward-looking statements in the presentation are reasonable, you should not
place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made.
The Company does not undertake, and expressly disclaims, any obligation to update or alter any statements whether
as a result of new information, future events or otherwise, expect as may be required by applicable law.

Results of Operations

Comparison of Operating Results for the Years Ended December 31, 2021 and 2020.

The Company reported net income of $51.8 million for the year ended December 31, 2021, compared to $41.9
million for the year ended December 31, 2020. On a diluted per common share basis, the Company reported $1.77
in 2021 and $1.47 in 2020. The results for 2021 include two months of income and expenses from Cortland
compared to none in 2020 along with acquisition-related expense and additional provision for credit losses as a
result of the merger and the adoption of CECL.

On November 1, 2021,

the Company completed its acquisition of Cortland Bancorp (“Cortland”) for
consideration consisting of a combination of cash and stock. Under the terms of the merger agreement, shareholders
of Cortland were able to receive either $28 per share in cash or 1.75 shares of the Company’s common stock, subject
to an overall limitation of 75% of the shares being exchanged for Company shares and 25% for cash. The Company
issued 5.6 million shares of its common stock along with cash of $29.6 million, which represented a transaction
value of approximately $128.5 million based on its closing stock price of $17.82 on October 31, 2021, the closing of
the merger. Goodwill of $48.5 million arising from the acquisition consisted largely of synergies and the cost
savings resulting from the combining of the entities.

Net Interest Income

The Company’s net interest income represents the difference between the interest income earned on interest-
earning assets and the interest expense paid on interest-bearing liabilities. Net interest income was $108.0 million
for the year ended December 31, 2021, compared to $96.2 million for the year ended December 31, 2020. The tax-
equivalent net interest margin was 3.45% for the year ended December 31, 2021, compared to 3.70% for the year
ended December 31, 2020. The margin declined due to the continued low level of treasury rates and the federal
funds rate, both of which has impacted asset yields more negatively than deposit costs. In addition, the balance of
securities available for sale as a percentage of interest earning assets is higher in 2021 than in 2020. These balances
generally have a lower yield than loans, which, in turn, negatively impacts the net interest margin.

Total interest income increased to $116.5 million for the year ended December 31, 2021 compared to $112.3
million for the year ended December 31, 2020. The increase of $4.2 million was primarily due to an increase in the
income on taxable and tax-exempt securities offset by a decline in the interest earned on loans.

The average balance of loans decreased $21.6 million for the year ended December 31, 2021 while the yield
on loans declined to 4.66% in 2021 from 4.79% in 2020, which caused interest income on loans to decline $3.6
million in 2021 to $94.8 million. The decline in average loan balances was primarily due to the payoff of PPP loans
along with declines in other loan categories due to high levels of customer liquidity and refinance opportunities
offset by the addition of Cortland’s loan balances.

The increase in income on taxable and tax-exempt securities to $20.9 million in 2021 compared to 2020 was
primarily due to an increase in the average balance on these securities of $505.9 million offset by a decline in their
yield. During 2021, the Company continued to invest excess cash balances into securities.

Interest expense declined $7.7 million to $8.5 million in 2021 compared to $16.1 million in 2020. The
decrease was due to a 45 basis point decline in the cost of interest-bearing liabilities offset by an increase in average
interest-bearing liabilities of $313.5 million. The average balance of interest-bearing deposits increased $342.7
million to $2.2 billion at December 31, 2021. Interest expense related to interest-bearing deposits was $6.8 million
in 2021 compared to $14.4 million in 2020.

30

Interest on short-term borrowings declined to $7 thousand in 2021 compared to $359 thousand in 2021 as the
Interest on long-term borrowings increased to $1.7 million in 2021

Company paid off these borrowings in 2021.
from $1.4 million in 2020.

31

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(

RATE AND VOLUME ANALYSIS
(Table Dollar Amounts in Thousands except Per Share Data)

The following table analyzes by rate and volume the dollar amount of changes in the components of the interest
differential:

Tax Equivalent Interest Income

Loans.............................................................. $
Taxable securities...........................................
Tax-exempt securities ....................................
Other investments ..........................................
Funds sold and other cash ..............................
Total interest income............................................. $

Interest Expense

Time deposits ................................................. $
Brokered time deposits...................................
Savings deposits.............................................
Demand deposits ............................................
Short term borrowings ...................................
Long term borrowings....................................
Total interest expense ........................................... $

Increase (decrease) in tax equivalent net interest
income................................................................... $

Net
Change

2021 change from 2020
Change Due
To Volume

Change Due
To Rate

Net
Change

2020 change from 2019
Change Due
To Volume

Change Due
To Rate

(3,599) $
5,976
2,352
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(97)
4,587

$

(4,431) $
(982)
(368)
(1,825)
(348)
287
(7,667) $

(1,034) $
10,536
3,796
197
135
13,630

$

(1,469) $
(886)
250
1,863
(291)
(210)
(743) $

(2,565) $
(4,560)
(1,444)
(242)
(232)
(9,043) $

(2,962) $
(96)
(618)
(3,688)
(57)
497
(6,924) $

9,262
583
1,257
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10,587

$

$

$

236
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(205)
(1,646)
(1,891)
898
(3,472) $

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478
1,314
209
1,867
19,407

1,544
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1,946
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2,900

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$

$

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(6,277)
105
(57)
(293)
(2,298)
(8,820)

(1,308)
(614)
(366)
(3,592)
(127)
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12,254

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14,373

$

(2,119) $

14,059

$

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(2,448)

The amount of change not solely due to rate or volume changes was allocated between the change due to rate

and the change due to volume based on the relative size of the rate and volume changes.

Noninterest Income

Total noninterest income increased to $38.2 million for the year ended December 31, 2021 compared to $36.2
million for the year ended December 31, 2020. The increase in noninterest income is mainly due to increases across
many categories of noninterest income offset by declines in the gain on sale of loans.

Bank owned life insurance income increased by $543 thousand in 2021 from 2020 due to the purchase of

more insurance at the end of 2020 and the addition of Cortland.

Trust fees increased to $9.4 million in 2021 from $7.6 million in 2020 while investment commissions
increased by $746 thousand in 2021 compared to 2020. Both of these categories benefitted from growth as well as
the strong performance of the equity markets in 2021.

Insurance agency commissions increased to $3.5 million in 2021 from $3.1 million in 2020, an increase of

10.6%. This growth was driven by increased business volume.

Security gains, including fair value changes on equity securities, increased by $624 thousand in 2021 to $1.0
million compared to gains of $380 thousand in 2020. The Company elected to restructure a portion of its investment
portfolio in 2021 that resulted in higher gains.

The net gains on the sale of loans declined by $3.1 million in 2021 to $8.3 million from $11.4 million in 2020.
The decline was due to a decline in margins as well as the volume of loans sold. The decline was offset somewhat
by the recognition of a $239 thousand gain on the sale of the Company’s credit card portfolio in 2021.

Debit card fees increased by $880 thousand in 2021 compared to 2020 due to increased activity along with the

addition of Cortland for two months in 2021.

33

Noninterest Expenses

Noninterest expense was $79.2 million for the year ended December 31, 2021, compared to $73.0 million in
2020, which was an increase of $6.2 million, or 8.5%. The increase is primarily due to the merger and merger-
related costs.

Salaries and employee benefits declined by $433 thousand to $39.4 million in 2021 compared to $39.8 million
in 2020. This decline was primarily due to the Company having a higher level of unfilled positions in 2021
compared to 2020 due to the continuing labor shortage offset by the addition of Cortland. In addition, the benefit of
deferred salary costs was greater in 2021 than in 2020.

Occupancy and equipment expense increased $1.2 million to $8.5 million in 2021 from $7.3 million in 2020.

The increase was due to Cortland and a higher level of facilities maintenance in 2021 compared to 2020.

Professional fees increased to $4.2 million in 2021 from $2.7 million in 2020. The increase was due to

Cortland and a higher level of consulting expense in 2021.

Merger related costs increased to $7.1 million in 2021 compared to $3.2 million in 2020. This increase was
due to the acquisition of Cortland in 2021, which was a larger acquisition than the acquisition of Maple Leaf in
2020.

State and local taxes increased $139 thousand in 2021 to $2.3 million. Advertising increased $328 thousand

to $1.9 million in 2021 and core processing charges declined by $353 thousand in 2021 to $3.2 million.

Income Taxes

Income tax expense increased to $10.3 million for 2021 compared to $8.4 million in 2020. The increase was
due to an $11.8 million increase in income before income taxes. Income taxes are computed using the appropriate
effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to
nontaxable interest and dividend income. The effective income tax rate was 16.5% for 2021 and 16.7% for 2020.
The decreased effective tax rate is due to additions to the non-taxable municipal securities portfolio. Refer to Note
18 to the consolidated financial statements for additional information regarding the effective tax rate.

Comparison of Operating Results for the Years Ended December 31, 2020 and 2019.

The Company’s net income totaled $41.9 million during 2020, compared to $35.8 million for 2019. On a per
share basis, diluted earnings per share were $1.47 as compared to $1.28 diluted earnings per share for 2019. Return
on average assets and return on average equity were 1.46% and 12.80%, respectively, for the year ending December
31, 2020, compared to 1.50% and 12.56% for 2019.

On January 7, 2020, the Company completed the acquisition of Maple Leaf Financial, Inc. (“Maple Leaf”), the
parent company of Geauga Savings Bank, with branches located in Cuyahoga and Geauga Counties in Ohio. The
transaction involved both cash and 1,398,229 shares of stock totaling $43.0 million. Pursuant to the terms of the
Merger Agreement, common shareholders of Maple Leaf had the right to receive $640.00 in cash or 45.5948
common shares, without par value, of the Company, subject to an overall limitation of 50% of the Maple Leaf
common shares being exchanged for Farmers common shares and 50% exchanged for cash. Holders of outstanding
and unexercised warrants to purchase Maple Leaf Common Shares received an amount in cash equal to the excess of
$640.00 over $370.00, the exercise price of such warrants. At January 7, 2020, Maple Leaf had total assets of
$277.0 million, which included gross loans of $182.1 million, deposits of $183.1 million and equity of $32.1
million.

Net Interest Income

Net interest income, the principal source of the Company’s earnings, represents the difference between
interest income on interest-earning assets and interest expense on interest-bearing liabilities. For 2020, taxable
equivalent net interest income increased $14.1 million, or 16.6%, from 2019.
Interest-earning assets averaged
$2.664 billion during 2020, increasing $451.3 million compared to 2019. The Company’s interest-bearing liabilities
increased 19.2% from $1.656 billion in 2019 to $1.974 billion in 2020.

34

The Company finances its earning assets with a combination of interest-bearing and interest-free funds. The
interest-bearing funds are composed of deposits, short-term borrowings and long-term debt. Interest paid for the use
of these funds is the second factor in the net interest income equation. Interest-free funds, such as demand deposits
and stockholders’ equity, require no interest expense and, therefore, contribute significantly to net interest income.

The profit margin, or spread, on invested funds is a key performance measure. The Company monitors two
key performance indicators - net interest spread and net interest margin. The net interest spread represents the
difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing
liabilities. The net interest spread in 2020 was 3.49%, decreasing from 3.53% in 2019. The net interest margin
represents the overall profit margin – net interest income as a percentage of total interest-earning assets. This
performance indicator gives effect to interest earned for all investable funds including the substantial volume of
interest-free funds. For 2020, the net interest margin, measured on a fully taxable equivalent basis, decreased to
3.70%, compared to 3.82% in 2019.

The decrease in net interest margin is mainly due to pressure on decreasing rates as the Federal Reserve Bank
continued to cut the federal funds interest rate in 2020. The Federal Reserve Bank cut the target federal funds rate to
0.00% - 0.25%. Total taxable equivalent interest income was $114.7 million for 2020, which is $10.6 million more
than the $104.1 million reported in 2019. This increase is mainly due to the increase in average earning assets due
to organic growth and the acquisition of Maple Leaf. In comparing the years ending December 31, 2020 and 2019,
yields on earning assets decreased 40 basis points while the cost of interest bearing liabilities decreased 36 basis
points. Average loans increased $305.1 million, or 17.4%, in 2020, however, the loan yield decreased 30 basis
points to 4.79%. Tax equated income from securities, federal funds and other increased $1.3 million, or 9.1%, in
2020. Farmers saw its yields on these assets decrease from 3.22% in 2019 to 2.65% in 2020 and the average balance
of investment securities and federal funds sold also increased from $454.5 million in 2019 to $600.7 million in 2020.

The decrease in the federal funds interest rate as mentioned above reduced the cost of short-term borrowings and
interest-bearing deposits during 2020. Total interest expense amounted to $16.1 million for 2020, a 17.7% decrease
from $19.6 million reported in 2019.
Interest-bearing deposits increased $334.5 million or 21.8% and decreases in
interest rates paid on deposits resulted in a $2.5 million or 14.7% decrease in interest expense on deposit balances.
Other borrowings balances decreased $16.2 million or 13.6% and the interest expense related to these borrowings
decreased $1.0 million or 36.1%. The total cost of interest-bearing deposits and borrowings decreased from 1.18% in
2019 to 0.82% in 2020.

Management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve

so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin.

Noninterest Income

Total noninterest income increased by $8.1 million, or 29.0% in 2020. The increase in noninterest income is
mainly due to net gains on the sale of loans increasing from $3.8 million in 2019 to $11.4 million in 2020 and the
increase in debit card and EFT fees increasing from $3.9 million in 2019 to $4.3 million in 2020. This increase was
partially offset by a decrease in income from service charges on deposit accounts of $832 thousand. The Bank and
the Company expect noninterest income to remain steady or decrease slightly during 2021 as management expects
the gain on sales of mortgage loans to be reduced in 2021.

Noninterest Expenses

Noninterest expense for 2020 was $73.0 million, compared to $64.9 million in 2019, representing an increase
of $8.1 million, or 12.5%. Most of the increase was from salaries and employee benefits, which grew $2.6 million
or 7.1%, mainly due to a temporary increase in FTE counts from the acquisition of Maple Leaf, employee bonuses
paid as a result of COVID-19 and annual merit increases. Other operating expenses increased by $1.5 million, or
15.9% as a result of increased captive insurance company losses, as members of the pool made claims for the
COVID-19 pandemic. These increases were slightly offset by a drop in professional fees of $389 thousand, or
12.5%, and litigation settlement expenses of $505 thousand.

35

Income Taxes

Income tax expense totaled $8.4 million for 2020 and $7.3 million in 2019. Income taxes are computed using
the appropriate effective tax rates for each period. The effective tax rates are less than the statutory tax rate
primarily due to nontaxable interest and dividend income. The effective income tax rate was 16.7% for 2020 and
17.0% for 2019. The decreased effective tax rate is due to additions to the non-taxable municipal securities
portfolio. We anticipate that the effective rate in 2021 will be in the range of 15% to 17%. Refer to Note 18 to the
consolidated financial statements for additional information regarding the effective tax rate.

Loan Portfolio

Maturities and Sensitivities of Loans to Interest Rates

The following schedule shows the composition of loans and the percentage of loans in each category at the

dates indicated. Balances include unamortized loan origination fees and costs.

Years Ended December 31,
2021
Commercial Real Estate.................... $1,010,674
312,532
Commercial.......................................
580,242
Residential Real Estate .....................
195,343
Consumer ..........................................
Agricultural .......................................
232,291
Total Loans ....................................... $2,331,082

2020
43.3% $ 712,818
13.4
401,003
523,340
24.9
208,842
8.4
232,041
10.0

2018
34.0% $ 578,181
14.1
244,742
492,133
27.6
221,795
11.9
198,989
12.4
100.0% $2,078,044 100.0% $1,811,539 100.0% $1,735,840 100.0% $1,577,381 100.0%

2017
33.3% $ 512,502
14.1
219,973
468,884
28.4
212,935
12.8
163,087
11.4

2019
34.3% $ 615,521
19.3
255,458
499,301
25.2
214,998
10.0
226,261
11.2

32.5%
13.9
29.7
13.5
10.4

The following schedule sets forth maturities based on remaining scheduled repayments of principal for loans

listed above as of December 31, 2021:

Types of Loans

Commercial......................................................
Commercial Real Estate...................................
Residential Real Estate.....................................
Consumer .........................................................
Agricultural ......................................................

1 Year or
less
22,733
52,356
8,575
3,583
4,014

$
$
$
$
$

1 to 5 Years
173,946
$
297,796
$
34,229
$
91,547
$
32,205
$

5 to 15
Years

Over 15
Years

$
$
$
$
$

69,459
593,897
153,922
85,197
41,836

$
$
$
$
$

46,394
66,625
383,516
15,016
154,236

The amounts of loans as of December 31, 2021, based on remaining scheduled repayments of principal, are

shown in the following table:

Loan Sensitivities

Floating or Adjustable Rates of Interest ........................
Fixed Rates of Interest...................................................
Total Loans ....................................................................

1 Year or less
46,565
$
44,695
91,260

$

Over 1 Year

$

$

1,214,609
1,025,213
2,239,822

$

$

Total
1,261,174
1,069,908
2,331,082

Total loans were $2.3 billion at year-end 2021, compared to $2.1 billion at year-end 2020 representing an
increase of 12.2%. Excluding the $482.2 million of loans added from the Cortland acquisition, loans decreased
11.0%. The decrease in loans can be attributed to the difficult lending environment, the payoff and forgiveness of
the PPP loans and the $3.0 million sale of the credit card portfolio. Loans comprised 64.0% of the Bank’s average
earning assets in 2021, compared to 77.5% in 2020. The product mix in the loan portfolio includes commercial real
estate loans 43.3%, commercial loans comprising 13.4%, residential real estate loans 24.9%, consumer loans 8.4%
and agricultural loans 10.0% at December 31, 2021, compared with 34.3%, 19.3%, 25.2%, 10.0% and 11.2%,
respectively, at December 31, 2020.

Loans contributed 80.0% of total taxable equivalent interest income in 2021 and 86.1% in 2020. Loan yields
were 4.66% in 2021, 94 basis points greater than the average rate for total earning assets. Management recognizes

36

that while the loan portfolio holds some of the Bank’s’ highest yielding assets, it is inherently the most risky
portfolio. Accordingly, management attempts to balance credit risk versus return with conservative credit standards.
Management has developed and maintains comprehensive underwriting guidelines and a loan review function that
monitors credits during and after the approval process. To minimize risks associated with changes in the borrower’s
future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments on all
types of loans and normally requires collateral. Commercial real estate loans increased from $712.8 million at
December 31, 2020 to $1.0 billion at December 31, 2021, an increase of $297.9 million or 41.8%. $313.7 million
coming from the acquisition of Cortland. The Company’s commercial real estate loan portfolio includes loans for
owner occupied and non-owner occupied real estate. These loans are made to finance properties such as office and
industrial buildings, hotels and retail shopping centers.

Residential real estate mortgage loans increased 10.9% to $580.2 million at December 31, 2021, compared to
$523.3 million in 2020. Cortland contributed $86.2 million at the acquisition date. Farmers originated both fixed
rate and adjustable rate mortgages during 2021. Fixed rate terms are generally limited to fifteen-year terms while
adjustable rate products are offered with maturities up to thirty years.

Commercial loans at December 31, 2021 decreased 22.1% from year-end 2020 with outstanding balances of
$312.5 million. The Bank’s commercial loans are granted to customers within the immediate trade area of the Bank.
The mix is diverse, covering a wide range of borrowers, business types and local municipalities. The Bank monitors
and controls concentrations within a particular industry or segment of the economy. These loans are made for
purposes such as equipment purchases, capital and leasehold improvements, the purchase of inventory, general
working capital and small business lines of credit.

Agricultural loans increased from $232.0 million in 2020 to $232.3 million in 2021, an increase of $250
thousand. The Company’s agricultural loan portfolio contains a diverse mix of dairy, crops, land, poultry and cattle
loans.

Summary of Credit Loss Experience

The following is an analysis of the allowance for credit losses for 2021. During 2021 the Company used the

CECL methodology while the incurred loss methodology was used in prior years:

Years Ended December 31,
Balance at Beginning of Year............................ $
Charge-Offs:

Commercial Real Estate...............................
Commercial..................................................
Residential Real Estate.................................
Consumer .....................................................
Total Charge-Offs ........................................

Recoveries on Previous Charge-Offs:

Commercial Real Estate...............................
Commercial..................................................
Residential Real Estate.................................
Consumer .....................................................
Total Recoveries ..........................................
Net Charge-Offs ................................................
Impact of CECL adoption .................................
Provision For Credit Losses and ACL On
Loans Acquired .................................................
Balance at End of Year...................................... $
Ratio of Net Charge-offs to Average

Loans Outstanding..........................................
Allowance for Credit Losses/Total Loans.........

2021
22,144

2020
14,487

$

2019
$ 13,592

2018
12,315

$

2017
$ 10,852

(70)
(388)
(297)
(912)
(1,667)

33
199
162
411
805
(862)
2,160

(122)
(412)
(172)
(1,347)
(2,053)

31
11
85
483
610
(1,443)
0

(45)
(200)
(400)
(1,702)
(2,347)

4
13
58
717
792
(1,555)
0

0
(220)
(318)
(2,318)
(2,856)

126
190
148
669
1,133
(1,723)
0

(207)
(375)
(162)
(2,542)
(3,286)

592
66
100
641
1,399
(1,887)
0

5,944
29,386

9,100
22,144

$

2,450
$ 14,487

3,000
13,592

$

3,350
$ 12,315

0.04%
1.26

0.07%
1.07

0.09%
0.80

0.10%
0.78

0.13%
0.78

37

Provisions charged to operations amounted to $4.9 million in 2021, compared to $9.1 million in 2020, a
decrease of $4.2 million. The reduced provision for the current year was mainly a result of current economic
conditions resulting from the improvement in the COVID-19 pandemic.

The Company adopted ASU 2016-13 to calculate the allowance for credit losses (“ACL”) which requires
projecting credit losses over the lifetime of the credits. The ACL is adjusted through the provision for credit losses
and reduced by net charge offs of loans. Although the Company has a diversified loan portfolio, the credit risk in
the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in
which the debtors operate, and the resulting impact on the operations of borrowers or on the value of any underlying
collateral.

The credit loss estimation process involves procedures that consider the unique characteristics of the
Company’s loan portfolio segments. These segments are disaggregated into the loan pools for monitoring. A model
of risk characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans,
as well as existing economic conditions and supportable forecasts used to determine credit loss assumptions.

The Company uses two methodologies to analyze loan pools. The cohort method (“cohort”) and the
probability of default/loss given default (“PD/LGD”). Cohort relies on the creation of cohorts to capture loans that
qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to
determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics
when evaluating loans on a collective basis. Those characteristics include, but aren’t limited to, internal or external
credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical
location. The Company uses cohort primarily for consumer loan portfolios.

The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed
on non-accrual, becomes a troubled debt restructuring or is partially, or wholly, charged-off. Typically, a one-year
time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one
common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or
collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography.
The Company uses PD/LGD primarily for commercial loan portfolios.

Net charge-offs for the year ended December 31, 2021 were $862 thousand, $581 thousand or 40.3% less than
net charge-offs for the year ended December 31, 2020. The allowance for credit losses to total loans increased to
1.26% at December 31, 2021 compared to 1.07% at December 31, 2020. Nonperforming loans to total loans
increased from 0.67% at December 31, 2020 to 0.69% at December 31, 2021.

In accordance with the accounting relief provisions of CARES and subsequent provisions of the Health and
Economic Recovery Omnibus Emergency Solutions (HEROES) Acts, the Bank postponed the adoption of the
current expected credit losses (“CECL”) accounting standard, in 2020, primarily due to the impact that the COVID-
19 pandemic was having on the economy and the lack of reasonable and supportable economic forecasts. The
Company adopted ASU 2016-13 on January 1, 2021. The Company recorded the one-time adjustment to equity, to
comply with the ASU adoption, which increased the allowance for credit losses by $1.9 million, net of tax.

The provision for credit losses charged to operating expense is based on management’s judgment after taking
into consideration all factors connected with the collectability of the existing loan portfolio. Management evaluates
the loan portfolio in light of economic conditions, changes in the nature and volume of the loan portfolio, industry
standards and other relevant reasonable and supportable forecasts. Specific factors considered by management in
determining the amounts charged to operating expenses include previous charge-off experience, the status of past
due interest and principal payments, the quality of financial information supplied by loan customers and the general
condition of the industries in the community to which loans have been made.

The allowance for credit losses increased $7.2 million during the year. The increase is the result of the impact

of CECL adoption, day one purchase accounting for the Cortland acquisition and the provision.

38

Typically, commercial and commercial real estate loans are identified as collateral dependent when they
become ninety days past due, or earlier if management believes it is probable that the Company will not collect all
amounts due under the terms of the loan agreement. When Farmers identifies a loan and concludes that the loan is
collateral dependent, Farmers performs an internal collateral valuation as an interim measure. Farmers typically
obtains an external appraisal to validate its internal collateral valuation as soon as is practical and adjusts the
associated specific loss reserve, if necessary.

The ratio of the allowance for credit losses to non-performing loans at December 31, 2021 was 181.5%,
compared to 160.06% at December 31, 2020. This was mainly due to the adoption of the new CECL methodology
in 2021. The percentage of non-performing loans to total loans increased slightly from 0.67% in 2020 to 0.69% in
2021. The balance in the allowance for credit losses also increased in 2021 to $29.4 million from $22.1 million in
2020. This is mainly due to the adoption of CECL and to the increased loan portfolio size.

Nonperforming Assets
December 31,
Nonaccrual loans:

2021

2020

2019

2018

2017

Commercial Real Estate ......................................... $ 3,004
7,190
Commercial ............................................................
4,280
Residential Real Estate ...........................................
682
Consumer................................................................
314
Agricultural ............................................................
Total Nonaccrual Loans ......................................... $15,470
Loans Past Due 90 Days or More ................................
725
Total Nonperforming Loans ........................................ $16,195

$

389
3,789
5,783
864
680
$ 11,505
2,330
$ 13,835

$

108
1,169
2,801
858
542
$ 5,478
867
$ 6,345

$ 422
946
4,166
495
736
$ 6,765
966
$ 7,731

$

717
1,192
4,038
660
56
$ 6,663
1,032
$ 7,695

Other Real Estate Owned.............................................
0
Total Nonperforming Assets........................................ $16,195

0
$ 13,835

19
$ 6,364

0
$ 7,731

171
$ 7,866

Loans modified in troubled debt restructurings ........... $ 3,862
TDRs included in Nonaccrual Loans........................... $ 1,962
Percentage of Nonperforming Loans to Total Loans...
Percentage of Nonperforming Assets to Total Assets .
Loans Delinquent 30-89 days ...................................... $ 8,891
Percentage of Loans Delinquent 30-89 days to

0.69%
0.39%

$ 4,105
$ 2,366

$ 4,597
$ 2,673

$ 5,520
$ 2,997

$ 4,980
$ 2,624

0.67%
0.45%

0.35%
0.26%

0.45%
0.33%

0.49%
0.36%

$ 9,297

$11,893

$ 8,877

$10,191

Total Loans ...............................................................

0.38%

0.45%

0.66%

0.51%

0.65%

The Company has forgone interest income of approximately $473 thousand from nonaccrual loans as of
December 31, 2021 that would have been earned, over the life of the loans, if all loans had performed in accordance
with their original terms.

The Company offered three-month deferrals upon request by borrowers. For those borrowers in industries
that were greatly impacted by COVID-19, additional deferrals were considered and granted beyond the initial three
month period. The range of the deferred months for subsequent requests were three to twelve months. The decline
in deferred loans and balances is due to borrowers not requesting additional deferments and most continued to pay
under the original terms of their loan.

Net charge-offs as a percentage of average loans outstanding increased slightly from 0.04% for 2020 to 0.06%
for 2021 as a result of average loans decreasing due to forgiveness and payoffs of PPP loans. Net charge-offs
decreased from $1.4 million in 2020 to $862 thousand in 2021. A decrease in gross charge-offs was experienced in
the consumer loan portfolio of $435 thousand but that was offset by an increase in gross charge-offs in the
residential real estate loan portfolio of $125 thousand.

39

The following table summarizes the Company’s allocation of the allowance for credit losses for under CECL

for 2021 and the allowance for loan losses for prior years:

December 31,

2021

Loans to

2020

2019

2018

2017

Loans to

Loans to

Loans to

Loans to

Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans

Commercial Real Estate.. $15,879
4,949
Commercial.....................
4,870
Residential Real Estate ...
3,688
Consumer ........................
$29,386

51.0% $10,775
5,022
15.7
3,684
24.9
2,663
8.4
100.0% $22,144

43.1% $ 6,127
2,443
21.6
3,032
25.2
2,885
10.0
100.0% $14,487

43.6% $ 5,294
2,200
16.9
2,982
27.6
3,116
11.9
100.0% $13,592

42.1% $ 4,507
2,128
16.8
2,667
28.3
3,013
12.8
100.0% $12,315

40.0%
16.8
29.7
13.5
100.0%

The allowance allocated to each of the four loan categories should not be interpreted as an indication that
charge-offs in 2021 occurred in the same proportions or that the allocation indicates future charge-off trends. The
allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon
the Company’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those
portfolios. The consumer loan category represents approximately 8.4% of total loans and in 2021, the gross charge-
offs accounted for 54.7% of the losses of the entire loan portfolio. For the commercial loan category, which
represents 15.7% of the total loan portfolio, management relies on the Bank’s internal loan review procedures and
allocates accordingly based on loan classifications. The gross charge-offs in the commercial loan portfolio, was
$388 thousand for 2021.

There were no loans other than those identified above, that management has known information about
possible credit problems of borrowers and their ability to comply with the loan repayment terms. Management is
actively monitoring certain borrowers’ financial condition and loans which management wants to more closely
monitor due to special circumstances. These loans and their potential loss exposure have been considered in
management’s analysis of the adequacy of the allowance for credit losses.

Loan Commitments and Lines of Credit

In the normal course of business, the Bank has extended various commitments for credit. Commitments for
mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one
year. Normally, no fees are charged on any unused portion, but an annual fee of two percent is charged for the
issuance of a letter of credit.

As of December 31, 2021, there were no concentrations of loans exceeding 10% of total loans that are not
disclosed as a category of loans. As of that date, there were also no other interest-earning assets that are either
nonaccrual, past due, restructured or non-performing.

Investment Securities

The investment securities portfolio increased $852.1 million in 2021 to $1.4 billion at December 31, 2021
from $575.6 million at December 31, 2020. This increase is primarily a result of the Company deploying cash
In addition, the Company acquired $130.6 million in
generated from the large inflow of deposits in 2021.
investment securities pursuant to the merger with Cortland. This growth was partially offset by runoff, sales
amortization and changes in fair value. For additional information regarding Farmers’ investment securities see
Note 3 to the Consolidated Financial Statements.

40

The following table shows the carrying value of investment securities by type of obligation at the dates

indicated:

December 31,
U.S. Treasury securities...................................................................................... $
U.S. government sponsored enterprise debt securities .......................................
Mortgage-backed securities - residential and collateralized

mortgage obligations .......................................................................................
Small Business Administration...........................................................................
Obligations of states and political subdivisions..................................................
Corporate bonds..................................................................................................
Equity securities..................................................................................................
Other investments measured at net asset value...................................................

Total securities ................................................................................................. $

2021

2020

61,662
29,169

$

668,571
5,430
658,815
4,030
228
14,721
1,442,626

$

955
10,890

188,175
5,562
366,306
3,712
538
6,343
582,481

41

A summary of debt securities held at December 31, 2021 classified according to maturity and including

weighted average yield for each range of maturities is set forth below:

Type and Maturity Grouping

U.S. Treasury securities

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Total U.S. Treasury securities.....................................................................................................

U.S. government sponsored enterprise debt securities

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total U.S. government sponsored enterprise debt securities ......................................................

Mortgage-backed securities - residential and collateralized mortgage

obligations (2)
Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total mortgage-backed securities ...............................................................................................

Small Business Administration

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total small business administration............................................................................................

Obligations of states and political subdivisions

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total obligations of states and political subdivisions .................................................................

Corporate bonds

Maturing within one year ...............................................................................................................
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years................................................................................
Maturing after ten years..................................................................................................................
Total other securities...................................................................................................................

$

$

$

$

$

$

$

$

$

$

$

$

December 31, 2021

Fair Value

Weighted Average
Yield (1)

101
538
61,023
61,662

0
2,152
26,398
619
29,169

0
479
33,456
634,636
668,571

0
0
0
5,430
5,430

1,044
11,680
42,321
603,770
658,815

405
526
2,976
123
4,030

2.09%
1.94%
1.10%
1.10%

1.89%
0.79%
1.23%
1.70%
1.21%

0.00%
3.31%
1.77%
1.63%
1.64%

0.00%
0.00%
0.00%
2.08%
2.08%

3.93%
3.78%
3.41%
2.95%
2.99%

1.64%
1.71%
4.14%
2.16%
3.71%

(1)

The weighted average yield has been computed by dividing the total contractual interest income adjusted for
amortization of premium or accretion of discount over the life of the security by the par value of the securities
outstanding. The weighted average yield of tax-exempt obligations of states and political subdivisions has
been calculated on a fully taxable equivalent basis. The amounts of adjustments to interest which are based on
the statutory tax rate of 21% were $9 thousand, $93 thousand, $303 thousand and $3.7 million for the four
ranges of maturities.

(2)

Payments based on contractual maturity.

42

Premises and Equipment

Premises and equipment increased to $37.5 million at December 31, 2021 compared to $25.6 million at
December 31, 2020. This increase was primarily due to the addition of $12.6 million in fixed assets acquired in the
merger offset by depreciation.

Bank Owned Life Insurance

Farmers owns bank owned life insurance policies on the lives of certain members of management. The
purpose of this investment is to help fund the costs of employee benefit plans. The cash surrender value of these
policies was $73.9 million at December 31, 2021, compared to $51.3 million at December 31, 2020. The increase
was primarily due to policies acquired in the current year merger, along with positive changes in the fair value of the
policies.

Deposits

Total deposits at December 31, 2021, were $3.5 billion compared to $2.6 billion at December 31, 2020, an
increase of $936.4 million, which includes $695.3 million from the merger. Non-interest bearing deposits increased
$307.4 million during 2021 to $916.2 million while interest-bearing deposits increased $660.9 million to $2.6
billion.
In addition to the increase in deposit balances from the merger, the Company saw significant organic
growth as customers continued to deposit additional funds to their accounts throughout the year. The Company has
access to the brokered certificate of deposit market and FHLB borrowing capacity if any of this deposit growth
should begin to reverse.

Average balances and average rates paid on deposits are as follows:

2021

Years Ended December 31
2020

2019

Amount

Rate

Amount

Rate

Amount

Rate

Noninterest-bearing demand ........................... $ 714,978
1,240,014
Interest-bearing demand..................................
246,900
Money market .................................................
322,279
Savings ............................................................
11,737
Brokered time deposits....................................
393,039
Certificates of deposit .....................................
Total........................................................... $2,928,947

0.00% $ 546,177
856,462
0.19%
213,455
0.24%
248,566
0.04%
0.64%
72,472
480,302
0.93%
0.34% $2,417,434

0.00% $ 429,289
641,461
0.49%
185,726
0.46%
224,946
0.04%
1.46%
83,311
401,317
1.68%
0.69% $1,966,050

0.00%
0.91%
0.64%
0.04%
2.31%
1.96%
0.98%

The following table sets forth the maturities of retail certificates of deposit having principal amounts

$250,000 or greater at December 31, 2021 (in thousands):

Retail certificates of deposit maturing in quarter ending:
March 31, 2022..........................................................................................
June 30, 2022.............................................................................................
September 30, 2022 ...................................................................................
December 31, 2022....................................................................................
After December 31, 2022 ..........................................................................
Total retail certificates of deposit with balances $250,000 or greater.......

$

$

7,376
17,619
9,194
9,084
90,480
133,753

Uninsured deposits for bank and savings and loan registrants are U.S. federally insured depository
institutions as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state
deposit insurance regimes and amounts in any other uninsured investment or deposit account that are classified as

43

deposits and not subject to any federal or state deposit insurance regimes. Deposits in amounts in excess of the
FDIC insurance limit were $1.16 billion at December 31, 2021.

Short-Term Borrowings

Farmers did not have any short-term borrowings at December 31, 2021 compared to $2.5 million at

December 31, 2020. See Note 12 within Item 8 of this Annual report on Form 10-K for additional detail.

Long-Term Borrowings

Total long-term borrowings increased $11.4 million to $87.8 million at December 31, 2021, from $76.4
million at December 31, 2020. During 2021, the Company paid off FHLB advances totaling $67.0 million and
assumed $4.3 million of junior subordinated debt securities in the merger with Cortland. In addition, in November
2021, the Company completed the issuance of $75.0 million aggregate principal amount, fixed-to-floating rate
subordinated notes due December 15, 2031, in a private offering exempt from the registration requirements under
the Securities Act of 1933, as amended. The notes carry a fixed rate of 3.125% for five years at which time they
will convert to a floating rate based on the three-month term secured overnight funding rate, plus a spread of 220
basis points. The Company may, at its option, beginning December 15, 2026, redeem the notes, in whole or in part,
from time to time, subject to certain conditions. The net proceeds from the sale were approximately $73.8 million,
after deducting the offering expenses. See Note 13 within Item 8 of this Annual report on Form 10-K for additional
detail.

Stockholders’ Equity

Total stockholders’ equity increased to $472.4 million at December 31, 2021 from $350.1 million at
December 31, 2020. The increase is due to $98.9 million for the share issuance for the merger with Cortland, net
income of $51.8 million and a reduction in treasury stock balances. This was offset by the dividends paid on
common stock during 2021, the cumulative impact of ASU 2016-13 adoption (CECL) and a decline in accumulated
comprehensive income.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

The following table presents, as of December 31, 2021, the Company’s significant fixed and determinable
contractual obligations by payment date. The payment amounts represent those amounts contractually due to the
recipient and do not include any unamortized premiums or discounts or other similar carrying value adjustments.
Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial
statements.

Commitments
December 31, 2021

Deposits without maturity
Certificates of deposit and
brokered time deposits ..
Leases...............................

Note
Ref.

2022
$ 3,158,967

2023

2024

2025

2026

Thereafter

11
9

163,085
833

$

66,550
780

$

47,872
610

$

65,652
603

$

39,259
586

$

5,850
4,245

There is also a $7.2 million additional commitment to SBIC investment funds over the next several years. The
payments have no predetermined due dates at year-end 2021. Note 13 to the consolidated financial statements
discusses in greater detail other commitments and contingencies and the various obligations that exists under those
agreements. Examples of these commitments and contingencies include commitments to extend credit and standby
letters of credit.

44

At December 31, 2021, the Company did not engage in derivatives or hedging contracts that may expose the
Company to liabilities greater than the amounts recorded on the consolidated balance sheet. Management’s policy is
to not engage in derivatives contracts for speculative trading purposes. The Company does utilize interest-rate
swaps as a way of helping manage interest rate risk and not as derivatives for trading purposes. See Note 22 within
Item 8 of this Annual report on Form 10-K for additional detail.

Liquidity

The principal sources of funds for the Bank are deposits, loan and security repayments, borrowings from
financial institutions, repurchase agreements and other funds provided by operations. The Bank also has the ability
to borrow from the FHLB. While scheduled loan repayments and maturing investments are relatively predictable,
deposit flows and early loan prepayments are more influenced by interest rates, general economic conditions and
competition. Investments in liquid assets maintained by the Company and the Bank are based upon management’s
assessment of (1) the need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets, and
(4) objectives of the asset and liability management program.

The Bank’s Asset/Liability Committee (ALCO) is responsible for monitoring liquidity guidelines, policies
and procedures. ALCO uses a variety of methods to monitor the liquidity position of the Bank including a liquidity
analysis that measures potential sources and uses of funds over future time periods. ALCO also performs
contingency funding analyses to determine the Bank’s ability to meet potential liquidity needs under stress scenarios
that cover varying time horizons ranging from immediate to long-term.

At December 31, 2021, the Company had total on-hand liquidity, defined as total cash and cash equivalents,

unencumbered securities and additional FHLB borrowing capacity, of $1.6 billion.

Capital Resources

The Bank, as a national chartered bank, is subject to the dividend restrictions set forth by the OCC. The OCC
must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits
for the preceding two years (as defined). Farmers and Farmers Bank are required to maintain minimum amounts of
capital to total “risk weighted” assets, as defined by the banking regulators. At December 31, 2021, under the
minimum capital requirements associated with the Basel Committee on capital and liquidity regulation (Basel III),
Farmers Bank and Farmers are required to have actual and minimum capital ratios, which are detailed in Note 16 of
the Consolidated Financial Statements. Farmers Bank and Farmers had capital ratios above the minimum levels at
December 31, 2021 and 2020. At year-end 2021 and 2020, the most recent regulatory notifications categorized
Farmers Bank as well capitalized under the regulatory framework for prompt corrective action.

During 2013, the Federal banking regulators approved a final rule to implement revised capital adequacy
standards of the Basel Committee on Banking Supervision, commonly called Basel III, and to address relevant
provisions of the Dodd-Frank Act. The final rule strengthens the definition of regulatory capital, increases risk-
based capital requirements, makes selected changes to the calculation of risk-weighted assets, and adjusts the prompt
corrective action thresholds. The Bank has retained, through a one-time election, the prior treatment for most
accumulated other comprehensive income, such that unrealized gains and losses on securities available for sale that
did not affect regulatory capital amounts and ratios. As mentioned in the prior paragraph, the Bank falls within the
new regulatory capital ratio guidelines.

Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally
accepted accounting principles in the United States of America and conform to general practices within the banking
industry. Some of these accounting policies are considered to be critical accounting policies. Critical accounting
policies are those policies that require management’s most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has
identified three accounting policies that are critical accounting policies and an understanding of these policies is

45

necessary to understand the financial statements. These policies relate to determining the adequacy of the allowance
for credit losses, if there is any impairment of goodwill and other intangibles, and estimating the fair value of assets
acquired and liabilities assumed in connection with any merger activity. Additional information regarding these
policies is included in the notes to the consolidated financial statements, including Note 1 (Summary of Significant
Accounting Policies), Note 4 (Loans) and Note 2 (Business Combinations), and the section above captioned “Loan
Portfolio.” Management believes that the judgments, estimates and assumptions used in the preparation of the
consolidated financial statements are appropriate given the factual circumstances at the time.

Farmers maintains an allowance for credit losses. The allowance for credit losses is presented as a reserve
against loans on the balance sheets. Credit losses are charged off against the allowance for credit losses, while
recoveries of amounts previously charged off are credited to the allowance for credit losses. A provision for credit
losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance. The
provision for credit losses provides for probable losses on loans.

The credit

loss estimation process involves procedures that consider the unique characteristics of the
Company’s loan portfolio segments. These segments are disaggregated into the loan pools for monitoring. A model
of risk characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans,
as well as existing economic conditions and supportable forecasts used to determine credit loss assumptions.

The Company uses two methodologies to analyze loan pools. The cohort method and the PD/LGD. Cohort
relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those
loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates
financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those
characteristics include, but are not limited to, internal or external credit score, risk ratings, financial asset, loan type,
collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for
consumer loan portfolios.

The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed
on non-accrual, becomes a troubled debt restructuring or is partially, or wholly, charged-off. Typically, a one-year
time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one
common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or
collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography.
The Company uses PD/LGD primarily for commercial loan portfolios.

Management believes that the accounting for goodwill and other intangible assets also involves a higher
degree of judgment
than most other significant accounting policies. GAAP establishes standards for the
amortization of acquired intangible assets and the impairment assessment of goodwill. Goodwill arising from
business combinations represents the value attributable to unidentifiable intangible assets in the business acquired.
The Company’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the
ability of the Company’s subsidiaries to provide quality, cost-effective services in a competitive marketplace. The
goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in
earnings resulting from a decline in the customer base or the inability to deliver cost-effective services over
sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods. GAAP
requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The fair value of the goodwill is estimated by reviewing the past and
projected operating results for the subsidiaries and comparable industry information. At December 31, 2021, on a
consolidated basis, Farmers had intangibles of $8.4 million subject to amortization and $94.2 million in goodwill,
which was not subject to periodic amortization.

The Company accounts for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic
805, Business Combinations, which requires the use of the acquisition method of accounting. Assets acquired and
liabilities assumed in a business combination are recorded at the estimated fair value on their purchase date. As
provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair
values of acquired assets and assumed liabilities, where it was not possible to estimate the acquisition date fair value
upon consummation. Management finalized the fair values of acquired assets and assumed liabilities within this 12-

46

month period and management currently considers such values to be the Day 1 Fair Values for the acquisition
transactions. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment
based on information available as of the acquisition date. Loans acquired in a business combination transaction are
evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit
component. A number of factors are considered in determining the estimated fair value of purchased loans
including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios,
estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market
interest rates, and net present value of cash flows expected to be received.

Recent Accounting Pronouncements and Developments

Note 1 to the consolidated financial statements discusses new accounting policies adopted by Farmers during
2021 and 2020 and the expected impact of accounting policies recently issued or proposed but not yet required to be
adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of
operations or liquidity, the impacts are discussed in the applicable sections of this financial review and notes to the
consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Important considerations in asset/liability management are liquidity, the balance between interest rate sensitive
assets and liabilities and the adequacy of capital. Interest rate sensitive assets and liabilities are those which have
yields on rates subject to change within a future time period due to maturity of the instrument or changes in market
rates. While liquidity management involves meeting the funds flow requirements of the Company, the management
of interest rate sensitivity focuses on the structure of these assets and liabilities with respect to maturity and
repricing characteristics. Balancing interest rate sensitive assets and liabilities provides a means of tempering
fluctuating interest rates and maintaining net interest margins through periods of changing interest rates. The
Company monitors interest rate sensitive assets and liabilities to determine the overall interest rate position over
various time frames.

The Company considers the primary market exposure to be interest rate risk. Simulation analysis is used to
monitor the Company’s exposure to changes in interest rates, and the effect of the change to net interest income.
The following table shows the effect on net interest income and the net present value of equity in the event of a
sudden and sustained 300 basis point increase and 100 basis point decrease in market interest rates. The
assumptions and predictions include inputs to compute baseline net interest income, growth rates, expected changes
in rates on interest bearing deposit accounts and loans, competition and various other factors that are difficult to
accurately predict.

Changes In Interest Rate (basis points)
Net Interest Income Change

+300 .............................................................................................
+200 .............................................................................................
+100 .............................................................................................
-100..............................................................................................

Net Present Value Of Equity Change

+300 .............................................................................................
+200 .............................................................................................
+100 .............................................................................................
-100..............................................................................................

2021
Result

2020
Result

ALCO
Guidelines

4.5%
3.2%
1.5%
-4.1%

6.2%
7.6%
6.1%
-12.4%

-1.6%
-1.2%
0.2%
-2.8%

8.9%
5.0%
27.8%
-19.0%

-15%
-10%
-5%
-5%

-20%
-15%
-10%
-10%

It should be noted that at December 31, 2021 and 2020, the change in the net present value of equity exceeded
policy when the simulation model assumed a sudden decrease in rates of 100 basis points (1%). This is primarily
due to the positive impact on the fair value of assets not being as great as the negative impact on the fair value of
certain liabilities. Specifically, because core deposits typically bear relatively low interest rates, their fair value
would be negatively impacted as the rates could not be adjusted by the full extent of the sudden decrease in rates.

47

Management will continue to monitor the policy exception and may consider changes to the asset/liability position
in the future. The remaining results of the simulations indicate that interest rate change results fall within internal
limits established by the Company at December 31, 2021 and 2020. A report on interest rate risk is presented to the
Board of Directors and the Asset/Liability Committee on a quarterly basis. The Company has no market risk
sensitive instruments held for trading purposes, nor does it hold derivative financial instruments, and does not plan
to purchase these instruments in the near future.

With the largest amount of interest sensitive assets and liabilities maturing within twelve months, the
Company monitors this area most closely. Early withdrawal of deposits, prepayments of loans and loan
delinquencies are some of the factors that can impact actual results in comparison to our simulation analysis.
In
addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change
in net interest margin.

Interest rate sensitivity management provides some degree of protection against net interest income volatility.
It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest sensitive
assets and liabilities. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic
planning also have an effect on the desired balance sheet structure.

48

Item 8. Financial Statements and Supplementary Financial Data.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Farmers National Banc Corp. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-
15(1) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of;
our principal executive and principal financial officers and effected by the board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles and
includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;

Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2021, based on criteria for effective internal control over financial reporting established in “Internal
Control — Integrated Framework,” issued by the Committee of Sponsoring Organization of the Treadway
Commission (COSO). Management also conducted an assessment of requirements pertaining to Section 112 of the
Federal Deposit Insurance Corporation Improvement Act. This section relates to management’s evaluation of
including controls over the preparation of financial statements in
internal control over financial reporting,
accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR
Y-9C) and in compliance with laws and regulations. Our evaluation included a review of the documentation of
controls, evaluations of the design of the internal control system and tests of the effectiveness of internal controls.
Based on this assessment, management has determined that the Company’s internal control over financial reporting
as of December 31, 2021, was effective.

In conducting the evaluation of the effectiveness of its internal control over financial reporting as of December 31,
2021, the Company has excluded the operations of Cortland Bancorp and its subsidiaries as permitted by the
guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend
more than one year beyond the date of the acquisition or for more than on annual reporting period). The merger was
completed on November 1, 2021. As of and for the year ended December 31, 2021, legacy Cortland Bancorp’s
assets represented approximately 19 percent of the Company’s consolidated assets and its revenues represented
approximately 4 percent of the Company’s consolidated revenues. See “Note 2 – Business Combination” for further
discussion of the merger and its impact on the Company’s consolidated financial statements.

CliftonLarsonAllen LLP, the independent registered public accounting firm that audited the consolidated financial
statements of the Company included in this Annual Report on Form 10-K, has issued an audit report on the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. The report,
which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2021 is included under the heading “Report of Independent Registered Public
Accounting Firm” In Part II, Item 8.

Kevin J. Helmick
President and Chief Executive Officer

Troy Adair
Executive Vice President and Chief Financial Officer

49

50

51

52

53

CONSOLIDATED BALANCE SHEETS
(Table Dollar Amounts in Thousands except Per Share Data)

December 31,
ASSETS
Cash and due from banks...................................................................................................................
Federal funds sold and other ..............................................................................................................
TOTAL CASH AND CASH EQUIVALENTS ...................................................................

Securities available for sale ...............................................................................................................
Other investments ..............................................................................................................................
Loans held for sale .............................................................................................................................
Loans..................................................................................................................................................
Less allowance for credit losses.........................................................................................................
NET LOANS........................................................................................................................

Premises and equipment, net..............................................................................................................
Goodwill ............................................................................................................................................
Other intangibles, net .........................................................................................................................
Bank owned life insurance.................................................................................................................
Other assets ........................................................................................................................................
TOTAL ASSETS .................................................................................................................

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:

Noninterest-bearing.....................................................................................................................
Interest-bearing ...........................................................................................................................
Brokered time deposits................................................................................................................
TOTAL DEPOSITS .............................................................................................................

Short-term borrowings .......................................................................................................................
Long-term borrowings .......................................................................................................................
Other liabilities...................................................................................................................................
TOTAL LIABILITIES.........................................................................................................

Commitments and contingent liabilities (Note 13)

Stockholders' equity

Common Stock - Authorized 50,000,000 shares in 2021 and 2020; 35,128,962 and
29,577,828 shares issued and 33,898,236 and 28,273,652 shares outstanding, respectively .....
Retained earnings........................................................................................................................
Accumulated other comprehensive income ................................................................................
Treasury stock, at cost; 1,230,726 and 1,304,176 shares, respectively ......................................
TOTAL STOCKHOLDERS' EQUITY................................................................................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..............................................

$

$

$

$

See accompanying notes

$

$

$

2021

29,150
83,640
112,790

1,427,677
30,459
4,545
2,331,082
29,386
2,301,696

37,520
94,240
8,366
73,855
51,601
4,142,749

916,237
2,630,998
0
3,547,235

0
87,758
35,324
3,670,317

2020

20,503
234,118
254,621

575,600
21,529
4,766
2,078,044
22,144
2,055,900

25,620
45,775
3,842
51,322
32,173
3,071,148

608,791
1,970,087
32,000
2,610,878

2,521
76,385
31,267
2,721,051

306,123
173,896
9,295
(16,882)
472,432
4,142,749

$

208,763
138,073
22,032
(18,771)
350,097
3,071,148

54

CONSOLIDATED STATEMENTS OF INCOME
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,
INTEREST AND DIVIDEND INCOME

Loans, including fees ............................................................................................ $
Taxable securities..................................................................................................
Tax exempt securities............................................................................................
Dividends ..............................................................................................................
Federal funds sold and other interest income........................................................
TOTAL INTEREST AND DIVIDEND INCOME........................................

INTEREST EXPENSE

Deposits.................................................................................................................
Short-term borrowings ..........................................................................................
Long-term borrowings ..........................................................................................
TOTAL INTEREST EXPENSE ....................................................................
NET INTEREST INCOME ...........................................................................
Provision for credit losses .....................................................................................
Provision (credit) for unfunded commitments ......................................................
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
AND UNFUNDED COMMITMENTS .........................................................

NONINTEREST INCOME

Service charges on deposit accounts.....................................................................
Bank owned life insurance income, including death benefits...............................
Trust fees...............................................................................................................
Insurance agency commissions.............................................................................
Security gains, including fair value changes for equity securities ........................
Retirement plan consulting fees............................................................................
Investment commissions .......................................................................................
Net gains on sale of loans .....................................................................................
Other mortgage banking income (loss), net ..........................................................
Debit card and EFT fees........................................................................................
Other operating income.........................................................................................
TOTAL NONINTEREST INCOME .............................................................

NONINTEREST EXPENSE

Salaries and employee benefits .............................................................................
Occupancy and equipment ....................................................................................
State and local taxes..............................................................................................
Professional fees ...................................................................................................
Merger related costs ..............................................................................................
Advertising............................................................................................................
FDIC insurance .....................................................................................................
Intangible amortization .........................................................................................
Core processing charges........................................................................................
Other operating expenses ......................................................................................
TOTAL NONINTEREST EXPENSE............................................................
INCOME BEFORE INCOME TAXES .........................................................

INCOME TAXES .....................................................................................................

NET INCOME ............................................................................................... $

2021

94,820
11,399
9,542
498
200
116,459

6,775
7
1,687
8,469
107,990
4,649
244

103,097

3,660
1,338
9,438
3,456
1,004
1,421
2,276
8,285
(136)
5,144
2,307
38,193

39,393
8,486
2,277
4,191
7,109
1,859
582
1,362
3,198
10,719
79,176
62,114

10,270
51,844

EARNINGS PER SHARE:

Basic...................................................................................................................... $
Diluted................................................................................................................... $

1.78
1.77

See accompanying notes.

$

$

$
$

$

2020

98,379
5,423
7,684
543
298
112,327

2019

89,103
4,840
6,687
627
729
101,986

14,381
359
1,396
16,136
96,191
9,159
(59)

87,091

3,682
795
7,632
3,124
380
1,523
1,530
11,362
(83)
4,264
1,952
36,161

39,826
7,254
2,138
2,733
3,223
1,531
750
1,327
3,551
10,647
72,980
50,272

8,396
41,876

1.48
1.47

$

$
$

16,860
2,250
498
19,608
82,378
2,160
290

79,928

4,514
818
7,475
2,919
42
1,489
1,406
3,777
49
3,886
1,667
28,042

37,172
6,649
1,826
3,122
197
1,736
331
1,306
3,370
9,186
64,895
43,075

7,315
35,760

1.29
1.28

55

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,
NET INCOME ............................................................................................................. $

2021
51,844

$

2020
41,876

$

2019
35,760

Other comprehensive income:

Net unrealized holding gains (losses) on available for sale securities ...........
Reclassification adjustment for (gains) losses realized in income.................
Net unrealized holding gains (losses) ...................................................................
Income tax effect............................................................................................
Unrealized holding gains (losses), net of reclassification and tax ........................

(15,333)
(838)
(16,171)
3,396
(12,775)

Change in funded status of post-retirement plan, net of tax .................................

38

16,651
(385)
16,266
(4,060)
12,206

0

17,513
11
17,524
(3,668)
13,856

0

Other comprehensive income (loss), net of tax.....................................................

(12,737)

12,206

13,856

TOTAL COMPREHENSIVE INCOME .............................................................. $

39,107

$

54,082

$

49,616

See accompanying notes.

56

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Table Dollar Amounts in Thousands except Per Share Data)

Balance December 31, 2018......................... $
Net income.................................................
Other comprehensive income ....................
Stock based compensation expense...........
Vesting of Long Term Incentive Plan .......
Share forfeitures for taxes..........................
Dividends paid at $0.38 per share .............
Treasury share purchases...........................
Balance December 31, 2019.........................
Net income.................................................
Other comprehensive income ....................
Stock based compensation expense...........
Vesting of Long Term Incentive Plan .......
Share forfeitures for taxes..........................
Share issuance as part of a business

combination ..................................................
Dividends paid at $0.44 per share .............
Treasury share purchases...........................
Balance December 31, 2020.........................
Net income.................................................
Other comprehensive loss..........................
Restricted share issuance ...........................
Restricted share forfeitures........................
Stock based compensation expense...........
Vesting of Long Term Incentive Plan .......
Share forfeitures for taxes..........................
Share issuance as part of a business

combination ..................................................

Cumulative impact of ASU 2016-13

adoption (CECL) ..........................................
Retirement of Cortland shares owned by
Farmers .........................................................
Dividends paid at $0.47 per share .............
Treasury share purchases...........................
Balance December 31, 2021......................... $

Common
Stock

186,163

$

Retained
Earnings

83,630
35,760

Accumulated
Other
Comprehensive
Income (Loss)
$

(4,030)

13,856

Treasury
Stock

$

(3,443)

$

9,826

12,206

22,032

(12,737)

1,203
(631)

(2,842)
(5,713)

1,740
(560)

(14,238)
(18,771)

412
(52)

2,136
(443)

1,385
(1,203)

186,345

1,443
(1,579)

22,554

208,763

(412)
52
1,193
(2,136)

98,921

(258)

(10,539)

108,851
41,876

(12,654)

138,073
51,844

(1,936)

(14,085)

306,123

$

173,896

$

9,295

$

(164)
(16,882)

$

See accompanying notes.

Total

262,320
35,760
13,856
1,385
0
(631)
(10,539)
(2,842)
299,309
41,876
12,206
1,443
161
(560)

22,554
(12,654)
(14,238)
350,097
51,844
(12,737)
0
0
1,193
0
(443)

98,921

(1,936)

(258)
(14,085)
(164)
472,432

57

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES

Net income ..............................................................................................................................
Adjustments to reconcile net income to net cash from operating

$

activities:

2021

2020

2019

51,844

$

41,876

$

35,760

Provision for credit losses ...............................................................................................
Provision for unfunded loans ..........................................................................................
Depreciation and amortization ........................................................................................
Net amortization of securities..........................................................................................
Available for sale security (gains) loss............................................................................
Realized (gains) losses on equity securities ....................................................................
Loss on land and building sales, net................................................................................
Stock compensation expense...........................................................................................
(Gains) loss on sale of other real estate owned ...............................................................
Earnings on bank owned life insurance...........................................................................
Loss on fixed asset disposal ............................................................................................
Income recognized from death benefit on bank owned life insurance............................
Origination of loans held for sale ....................................................................................
Proceeds from loans held for sale....................................................................................
Net gains on sale of loans................................................................................................
Net change in other assets and liabilities.........................................................................
NET CASH FROM OPERATING ACTIVITIES .....................................................

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from maturities and repayments of securities available for

sale................................................................................................................................
Proceeds from sales of securities available for sale ........................................................
Purchases of securities available for sale ........................................................................
Proceeds from sale of equity securities ...........................................................................
Purchases of equity securities..........................................................................................
Proceeds from maturities and repayments of SBIC funds ..............................................
Purchases of SBIC funds .................................................................................................
Purchases of restricted stock ...........................................................................................
Redemption of restricted stock........................................................................................
Loan originations and payments, net...............................................................................
Proceeds from sale of other real estate owned ................................................................
Proceeds from BOLI death benefits ................................................................................
Purchase of bank owned life insurance ...........................................................................
Proceeds from land and building sales ............................................................................
Additions to premises and equipment .............................................................................
Net cash received (paid) in business combinations.........................................................
NET CASH FROM INVESTING ACTIVITIES.......................................................

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in deposits.....................................................................................................
Net change in short-term borrowings ..............................................................................
Repayments of long-term borrowings .............................................................................
Proceeds from long term borrowings ..............................................................................
Cash dividends paid.........................................................................................................
Repurchase of common shares........................................................................................
NET CASH FROM FINANCING ACTIVITIES.......................................................
NET CHANGE IN CASH AND CASH EQUIVALENTS ........................................

Beginning cash and cash equivalents ..............................................................................
Ending cash and cash equivalents ...................................................................................

Supplemental cash flow information:

Interest paid .....................................................................................................................
Income taxes paid ............................................................................................................

Supplemental noncash disclosures:

Transfer of loans and property to other real estate owned ..............................................
Issuance of stock for business combinations...................................................................
Issuance of stock awards .................................................................................................
Security purchases not settled .........................................................................................

$

$
$

$
$
$
$

4,649
244
3,539
3,555
(838 )
(166 )
247
1,193
0
(1,298 )
0
(40 )
(398,011 )
406,381
(8,285 )
(8,081 )
54,933

74,376
35,175
(849,941 )
258
(68 )
1,261
(1,116 )
(22 )
2,198
231,479
0
352
0
37
(1,375 )
83,773
(423,613 )

241,083
(6,767 )
(66,980 )
73,749
(14,072 )
(164 )
226,849
(141,831 )

254,621
112,790

8,482
12,500

0
98,921
2,136
0

$

$
$

$
$
$
$

9,159
(59)
3,122
2,347
(385 )
5
77
1,443
(38 )
(795 )
0
0
(245,060 )
255,167
(11,362 )
(6,431 )
49,066

61,117
60,341
(176,212 )
67
(842 )
0
0
(2,843 )
5,383
(86,741 )
241
0
(15,000 )
502
(3,696 )
(2,204 )
(159,887 )

418,663
(49,529 )
(47,560 )
0
(12,654 )
(14,238 )
294,682
183,861

70,760
254,621

16,515
9,000

73
22,554
1,740
3,889

$

$
$

$
$
$
$

2,160
290
2,839
2,323
11
(53 )
26
1,385
45
(818 )
12
0
(75,568 )
78,591
(3,777 )
(4,465 )
38,761

35,583
33,424
(83,049 )
1,302
(1,939 )
0
0
0
8
(77,554 )
236
49
0
252
(1,458 )
0
(93,146 )

209,244
(167,709 )
(935 )
40,000
(10,539 )
(2,842 )
67,219
12,834

57,926
70,760

19,529
6,450

300
0
1,203
812

See accompanying notes.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands except Per Share Data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of Farmers National Banc
Corp. (“Company”) and its wholly-owned subsidiaries, The Farmers National Bank of Canfield (“Bank” or
“Farmers Bank”), Farmers Trust Company (“Farmers Trust”) and Farmers National Captive, Inc. (“Captive”). The
consolidated financial statements also include the accounts of the Bank’s subsidiaries; Farmers National Insurance,
LLC (“Farmers Insurance”) and Farmers of Canfield Investment Co. (“Farmers Investments”). The Company
completed its acquisition of Cortland Bancorp (“Cortland”) on November 1, 2021 thereby including two months of
operations in the Consolidated Statement of Income. The Company acquired Maple Leaf Financial, Inc. (“Maple
Leaf”), the parent company of Geauga Savings Bank in January 2020 and has since included its results of operations
in the Consolidated Statements of Income. Together all entities are referred to as “the Company.” All significant
intercompany balances and transactions have been eliminated in consolidation.

Corporate Reorganization: During 2019, Trust acquired all shares of National Associates, Inc. (“NAI”) from the
Company through a corporate reorganization. The Company was the sole shareholder of Trust and NAI before the
reorganization. The entities were combined into one reporting unit and one operating segment and began reporting
as one unit, for both internal and external reports, during 2019. The combination was in concert with the
Company’s plan to increase efficiencies within the different business lines.

Nature of Operations: The Company provides full banking services, including wealth management services and
mortgage banking activity, through the Bank. As a national bank, the Bank is subject to regulation by the Office of
the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The primary area served by the
Bank is the northeastern region of Ohio through forty-seven (47) locations and one location in southwestern
Pennsylvania. The Company provides trust services and retirement consulting services through its Farmers Trust
subsidiary and insurance services through the Bank’s Insurance subsidiary. Farmers Trust has a state-chartered bank
license to conduct trust business from the Ohio Department of Commerce – Division of Financial Institutions. The
primary purpose of Farmers Investments is to invest in municipal securities. Captive provides property and casualty
insurance coverage to the Company and its subsidiaries. Captive pools resources with eleven similar insurance
subsidiaries of financial institutions to spread a limited amount of risk among the pool members and to provide
insurance where not currently available or economically feasible in today’s insurance market place.

Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.

Business Combinations: Business combinations are accounted for by applying the acquisition method. As of
acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized
separately from goodwill. Results of operations of the acquired entities are included in the consolidated statement of
income from the date of acquisition.

Cash Flows: Cash and cash equivalents include cash on hand, deposits with other financial institutions and federal
funds sold. Generally, federal funds are purchased and sold for one-day periods. Net cash flows are reported for
loan and deposit transactions, short-term borrowings and other assets and liabilities.

Securities: Debt securities classified as available for sale are those that could be sold for liquidity, investment
management, or similar reasons, even though management has no present intentions to do so. Securities available
for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income,
net of tax. Equity securities with readily determinable fair values are carried at fair value, with changes in fair value
reported in net income.

59

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are
amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where
prepayments are anticipated. Premiums are amortized to the earliest call date. Purchases and sales are recorded on
the trade date, with resulting gains and losses determined using the specific identification method.

The Company has adopted ASU 2016-13 that makes improvements to the accounting for credit losses on securities
available for sale. The concept of other than-temporarily impaired securities has been replaced with the allowance
for credit losses. Securities available for sale are evaluated on an individual level and pooling of securities is no
longer an option. During this evaluation process, management considers the extent to which the fair value has been
less than cost, the financial condition and near term prospects of the issuer, and the intent and ability of the
Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the
lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized
losses, if any, are charged to earnings.

Mortgage loans held for sale are sold with or without servicing rights. Gains and losses on sales of mortgage loans
are based on the difference between the selling price and the carrying value of the related loan sold.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for
credit losses. Substantially all loans are secured by specific items of collateral including business assets, consumer
assets, and commercial and residential real estate.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination
costs, are deferred and recognized in interest income using the level yield method without anticipating prepayments.
Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless
the loan is well secured and in process of collection. Consumer loans are typically charged off no later than 120
days past due. Past due status is based on the contractual terms of the loan.
In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual
loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually classified impaired loans.

For all classes of loans, when interest accruals are discontinued, interest accrued but not received is reversed against
Interest on such loans is thereafter recorded on a cash-basis or cost-recovery method, until
interest income.
qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.

Purchased Credit Deteriorated Loans (PCD): The Company acquires loans individually and in groups or portfolios.
At acquisition, the Company reviews each loan to determine whether there is evidence of more than insignificant
deterioration of credit quality since origination. The Company determines whether each such loan is to be
accounted for individually or whether such loans will be assembled into pools of loans based on common risk
characteristics (loan type and date of origination).

PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded.
In addition, an
adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular
basis and subsequent adjustments to the ACL are recorded on the statements of net income.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The Company’s
only derivative is interest-rate swap agreements, which are used as part of its asset and liability management strategy
to aid in managing its interest rate risk position. The Company does not use derivatives for trading or balance sheet
hedging purposes. The derivative transactions are considered instruments with no hedging designation, with
changes in the fair value reported currently in earnings, as other noninterest income.

60

Concentration of Credit Risk: There are no significant concentrations of loans to any one industry or customer.
However, most of the Company’s business activity is with customers located within Northeastern Ohio. Therefore,
the Company’s exposure to credit risk is significantly affected by changes in the economy of an eleven county area.
Loans secured by real estate represent 68.4% of the total portfolio and changes related to the real estate markets are
monitored by management.

Allowance for Credit Losses: On January 1, 2021, the Company adopted the current expected credit loss model
(“CECL”). This methodology for calculating the allowance for credit losses considers the possibility of loss over
the life of the loan. It also considers historical loss rates and other qualitative adjustments, as well as a new forward-
looking component that considers reasonable and supportable forecasts over the expected life of each loan. To
develop the ACL estimate under the current expected loss model, the Company segments the loan portfolio into loan
pools based on loan type and similar credit risk elements. The Company uses the cohort (“cohort”) and the
probability of default/loss given default (“PD/LGD”) methodologies as described in the Credit Quality Indicators
section of the loan footnote. Under ASC 326, if a loan does not share similar risk characteristics with loans in that
pool, expected credit losses for that loan are evaluated individually. The Company has established specific
thresholds for the loan portfolio that trigger when loans need to be evaluated individually.

In addition, ASC Topic 326 requires the Company to establish a separate liability for anticipated credit losses for
unfunded commitments. Prior to 2021, the Company included this reserve in the allowance for loan losses but it is
now recorded as a reserve in other liabilities.

Under CECL the credit loss estimation process involves procedures that consider the unique characteristics of the
Company’s loan portfolio segments. These segments are disaggregated into the loan pools for monitoring. A model
of risk characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans,
as well as existing economic conditions and supportable forecasts used to determine credit loss assumptions.

The Company uses two methodologies, the cohort and the PD/LGD, to analyze loan pools. Cohort relies on the
creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then
tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on
the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include,
but aren’t limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size,
effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan
portfolios.

The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on
non-accrual, becomes a troubled debt restructuring or is partially, or wholly, charged-off. Typically, a one-year time
period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common
way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type.
LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses
PD/LGD primarily for commercial loan portfolios.

A reassessment of the existing acquired loans occurred in the third quarter of 2021. This was to align with the
calculation of the ACL being used under the CECL model. To the extent that any purchased loan is not specifically
reviewed, such loan is assumed to have characteristics similar to the characteristics of the originated risk pools. The
grade for each purchased loan without evidence of credit deterioration is reviewed subsequent to the date of
acquisition any time a loan is renewed or extended or at any time information becomes available to the Company
that provides material insight regarding the loan’s performance, the status of the borrower or the quality or value of
the underlying collateral. To the extent that current information indicates it is probable that the Company will
collect all amounts according to the contractual terms thereof, such loan is not individually considered in the
determination of the required allowance for credit losses. To the extent that current information indicates it is
probable that the Company will not be able to collect all amounts according to the contractual terms thereof, such
loan is considered in the determination of the required level of allowance.

In determining the day one fair values of purchased loans without evidence of credit deterioration at the date of
acquisition, management includes (i) no carry-over of any previously recorded allowance for loan losses and (ii) an
adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and

61

grade assigned to each loan. This adjustment is accreted into earnings as a yield adjustment, using the effective
yield method, over the remaining life of each loan.

The ACL represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance
sheet date. The Company estimates the ACL based on the amortized cost basis of the underlying loan and has made
an accounting policy election to exclude accrued interest from the loan’s amortized cost basis and the related
measurement of the ACL. Estimating the amount of the ACL is a function of a number of factors, including but not
limited to changes in the loan portfolio, net charge-offs, trends in past due and nonaccrual loans, and the level of
potential problem loans, all of which may be susceptible to significant change. While management uses the best
information available to establish the allowance, future adjustments to the allowance may be necessary, which may
be material, if economic conditions differ substantially from the assumptions used in estimating the allowance. If
additions to the original estimate of the allowance for credit losses are deemed necessary, they will be reported in
earnings in the period in which they become reasonably estimable and probable. Allocations of the allowance may
be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should
be charged-off.

The Company considers the guidance on troubled debt restructuring for loans when evaluating for disclosure.
Troubled debt restructurings are measured at the present value of estimated future cash flow using the loan’s
effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is
reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the
Company determines the amount of reserve in accordance with the accounting policy for the allowance for credit
losses.

Prior to 2021, as described in further detail in the Company’s 2020 Form 10-K, the Company used an incurred loss
impairment model. This methodology assessed the overall appropriateness of the allowance for credit losses and
included allocations for specifically identified impaired loans and loss factors for all remaining loans, with a
component primarily based on historical loss rates and another component primarily based on other qualitative
factors. Impaired loans were individually assessed and measured based on the present value of expected future cash
flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the
collateral if the loan was collateral dependent. Loans that were determined not to be impaired were collectively
evaluated for impairment, stratified by type and allocated loss ranges based on the Company’s actual historical loss
ratios for each strata, and adjustments were also provided for certain environmental and other qualitative factors.

Servicing Rights: When mortgage loans are sold and servicing rights are retained, the servicing rights are initially
recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on
market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation
model that calculates the present value of estimated future net servicing income. The valuation model incorporates
assumptions that market participants would use in estimating future net servicing income, such as the cost to service,
the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates
and losses. The Company compares the valuation model inputs and results to published industry data to validate the
model results and assumptions.

All classes of servicing assets are subsequently measured using the amortization method, which requires servicing
rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net
servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of
the assets compared to carrying amount. Any impairment is reported as a valuation allowance, to the extent that fair
value is less than the capitalized amount for a grouping. There was no valuation allowance impairment against
servicing assets as of December 31, 2021 or 2020.

Servicing fee income is recorded when earned for servicing loans based on a contractual percentage of the
outstanding principal or a fixed amount per loan. The amortization of mortgage servicing rights is netted against
loan servicing fee income. Servicing fees, late fees and ancillary fees related to loan servicing are not considered
significant for financial reporting.

Foreclosed Assets: Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less
costs to sell, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value

62

less estimated costs to sell.
If fair value declines subsequent to foreclosure, a valuation allowance is recorded
through expense. These assets are recorded in other assets on the balance sheets as other real estate owned
(“OREO”). Operating costs after acquisition are expensed. The Company had zero OREO recorded at December
31, 2021 and 2020.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost, less accumulated
depreciation. Buildings and related components are depreciated using the straight-line method with useful lives
ranging from 5 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line method with
useful lives ranging from 3 to 10 years.

Restricted Stock: The Bank is a member of the Federal Home Loan Bank (“FHLB”) system. Members are required
to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional
amounts. The Bank is also a member of and owns stock in the Federal Reserve Bank. These stocks are carried at
cost, classified as restricted securities included in other investments, and periodically evaluated for impairment
based on ultimate recovery of par value. Restricted stock totaled $15.6 million at December 31, 2021 and $14.6
million in 2020. Cash and stock dividends are reported as income.

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key officers. Bank
owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet
date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at
settlement.

Long-term Assets: Premises and equipment and other long-term assets are reviewed for impairment when events
indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets
are recorded at fair value.

Goodwill and Other Intangible Assets: Goodwill resulting from a business combination is generally determined as
the excess of the fair value of the consideration transferred over the fair value of the net assets acquired as of the
acquisition date. Goodwill acquired in a business combination and determined to have an indefinite useful life is not
amortized, but tested for impairment at least annually. The Company has selected September 30 as the date to
perform the annual goodwill impairment tests associated with the acquisitions of Farmers Trust, Farmers Insurance
and the recent Banking acquisitions. Intangible assets with definite useful lives are amortized over their estimated
useful lives. Goodwill is the only intangible asset with an indefinite life on the balance sheet. Core deposit
intangible assets arising from bank acquisitions are amortized over their estimated useful lives of 7 to 8 years. Non-
compete contracts are amortized on a straight-line basis, over the term of the agreements. Customer relationship and
trade name intangibles are amortized over a range of 13 to 15 years on an accelerated method.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing
needs. The face amount for these items represents the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.

Stock-Based Compensation: Compensation cost is recognized for restricted stock awards issued to employees,
based on the fair value of these awards at the date of grant. The market price of the Company’s common stock at
the grant date is used for restricted stock awards. Compensation cost is recognized over the required service period,
generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a
straight-line basis over the requisite service period for the entire award.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax
rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount

63

of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Retirement Plans: Employee 401(k) and profit sharing plan expense is the amount of matching and discretionary
contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of
service.

Earnings per Common Share: Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share include the dilutive
effect of additional potential common shares issuable under stock equity awards. Earnings and dividends per share
are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss).
Other comprehensive income (loss) consists of unrealized gains and losses on securities available for sale and
changes in the funded status of the post-retirement plan, which are recognized as separate components of equity, net
of tax effects.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there are any matters currently that would have a material
effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank (“FRB”) was required to meet
regulatory reserve and clearing requirements.

Equity: Treasury stock is carried at cost.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends
paid by the Bank and Farmers Trust to the holding company or by the holding company to shareholders.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market
information and other assumptions as more fully disclosed in Note 7. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly
affect these estimates.

Operating Segments: Operations are managed and financial performance is primarily aggregated and reported in
two lines of business, the Bank segment and Farmers Trust segment. The Company discloses segment information
in Note 23.

Reclassification: Some items in the prior year financial statements were reclassified to conform to the current
presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

Adoption of New Accounting Standards and Newly Issued, Not Yet Effective Accounting Standards:

On October 28, 2021, FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires contract assets and
contract liabilities to be accounted for as if they (the acquirer) entered into the original contract at the same time and
same date as the acquiree. This is a shift from existing guidance, which required the acquirer to recognize contract
assets and contract liabilities at their fair value as of the acquisition date. The amendments in this Update are
effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
Management is still evaluating the expected effects of adoption of this ASU although the adoption of this standard is
not expected to have a material effect on the Company’s operating results or financial condition.

64

On March 12, 2020, the FASB issued ASU 2020-04 and amended by ASU 2021-01, Facilitation of the Effects of
Reference Rate Reform on Financial Reporting, to ease the burden of accounting for contract modifications related
to reference rate reform. The amendments in ASU 2020-04 create a new Topic in the Codification, ASC
848, Reference Rate Reform, which contains guidance that is designed to simplify how entities account for contracts
that are modified to replace LIBOR or other benchmark interest rates with new rates. The amendments in ASU
2020-04 give entities the option to apply expedients and exceptions to contract modifications that are made until
December 31, 2022, if certain criteria are met. If adopted, these amendments and exceptions should be applied to all
eligible modifications to contracts that are accounted for under an ASC Topic or industry Subtopic. The guidance in
ASC 848 will not apply to any contract modifications made after December 31, 2022. The amendments in this
update are elective and can be applied during the period of March 12, 2020 through December 31, 2022. The
adoption of this standard is not expected to have a material effect on the Company’s operating results or financial
condition.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. Instead, under the new
guidance, an entity is to perform its annual goodwill impairment test by comparing the fair value of a reporting unit
with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value. The new guidance was effective for annual reporting periods, and interim
reporting periods within those annual periods, beginning after December 15, 2019. Early adoption was permitted for
interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company
adopted this ASU on January 1, 2020. The adoption of this guidance did not have an impact on the Company’s
Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13: Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for
financial assets held at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts. Financial institutions and other organizations will now use forward-looking information to
better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted,
although the inputs to those techniques changed to reflect the full amount of expected credit losses. Organizations
will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.
Additionally, the ASU amends the accounting for credit losses on available for sale debt securities and purchased
financial assets with credit deterioration. ASU 2016-13 was effective for public companies for annual periods
beginning after December 15, 2019. Entities will apply the standard’s provisions as a cumulative-effect adjustment
to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

In accordance with the accounting relief provisions of CARES and subsequent provisions of the Health and
Economic Recovery Omnibus Emergency Solutions (HEROES) Act, the Bank postponed the adoption of the current
expected credit losses (“CECL”) accounting standards, primarily due to the impact of the COVID-19 pandemic,
from January 1, 2020 to January 1, 2021. The Company adopted ASC 326 using the modified retrospective method
for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting
periods beginning after January 1, 2021 are presented under ASC 326 while prior period amounts continue to be
reported in accordance with previously applicable GAAP. The Company recorded the onetime adjustment to equity
in the amount of $1.9 million, net of tax which increased the allowance for credit losses $2.5 million.

NOTE 2 – BUSINESS COMBINATIONS

On November 1, 2021, the Company completed the merger with Cortland Bancorp Inc. (“Cortland”), the parent
company of The Cortland Savings and Banking Company (“Cortland Bank”), pursuant to the Agreement and Plan of
Merger, dated as of June 22, 2021, as amended by that certain Amendment to Agreement and Plan of Merger, dated
October 12, 2021 (collectively, the “Merger Agreement”), by and among the Company, Cortland, and FMNB
Merger Subsidiary IV, LLC, a wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the terms of
the Merger Agreement, on November 1, 2021, Cortland merged with and into Merger Sub (the “Merger”), with
Merger Sub as the surviving entity in the Merger. Promptly following the consummation of the Merger, Merger Sub
was dissolved and liquidated and Cortland Bank merged with and into the Bank (the “Bank Merger”), with the Bank
as the surviving bank in the Bank Merger. The transaction received the approval of Cortland’s shareholders and all

65

customary regulatory approvals. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger,
each common share, without par value, of Cortland issued and outstanding immediately prior to the effective time
(except for certain Cortland common shares held directly by Cortland or the Company) was converted into the right
to receive, without interest, $28.00 per share in cash or 1.75 shares of the Company’s common stock, subject to an
overall limitation of 75% of the Cortland shares being exchanged for the Company’s shares and the remaining 25%
being exchanged for cash. The Company issued 5.6 million shares of its common stock along with cash of $29.6
million, which represented a transaction value of approximately $128.5 million based on its closing stock price of
$17.82 on October 31, 2021, the closing of the merger.

In accordance with ASC 805, the Company expensed approximately $7.1 million of merger related costs during the
year ended December 31, 2021. The Company recorded goodwill of $48.5 million as a result of the combination.
Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified
and separately recognized and is attributable to synergies, including the reduction of personnel and overlapping
contracts, expected to be derived from the Company’s strategy to enhance and expand its presence in northeast
Ohio. The merger offers the Company the opportunity to increase profitability by introducing existing products and
services to the acquired customer base as well as add new customers in the expanded market area. The goodwill
was determined not to be deductible for income tax purposes.

The following table summarizes the consideration paid for Cortland and the amounts of the assets acquired and
liabilities assumed on the closing date of the acquisition.

Consideration

Cash ........................................................................................................................................ $
Stock .......................................................................................................................................
Fair value of total consideration transferred ................................................................................ $
Fair value of assets acquired

Cash and cash equivalents ...................................................................................................... $
Securities available for sale ....................................................................................................
Other investments...................................................................................................................
Loans ......................................................................................................................................
Premises and equipment .........................................................................................................
Bank owned life insurance .....................................................................................................
Core deposit intangible...........................................................................................................
Current and deferred taxes .....................................................................................................
Other assets.............................................................................................................................
Total assets acquired............................................................................................................

Fair value of liabilities assumed

Deposits ..................................................................................................................................
Short-term borrowings ...........................................................................................................
Long-term borrowings............................................................................................................
Accrued interest payable and other liabilities ........................................................................
Total liabilities .....................................................................................................................

Net assets acquired............................................................................................................ $

Goodwill created ....................................................................................................................

Total net assets acquired...................................................................................................... $

29,618
98,921
128,539

113,391
130,574
16,092
482,168
12,644
21,547
5,886
3,135
7,805
793,242

695,274
4,246
4,262
9,386
713,168
80,074
48,465
128,539

The following table presents unaudited pro forma information as if the Cortland acquisition that occurred on
November 1, 2021 actually took place on January 1, 2020. The unaudited pro forma information for the years ended
December 31, 2021 and 2020 includes adjustments of interest income on loans, amortization of core deposit
intangibles arising from the transaction, interest expense on deposits and borrowings acquired. The unaudited pro

66

forma financial information is not necessarily indicative of the results of operations that would have occurred had
the transaction been effective on the assumed date.

Net interest income........................................................................................ $
Provision for credit losses..............................................................................
Noninterest income........................................................................................
Noninterest expense.......................................................................................
Income before income taxes ..........................................................................
Income tax expense .......................................................................................
Net income..................................................................................................... $
Basic earnings per share ................................................................................ $
Diluted earnings per share ............................................................................. $

2021

2020

130,005
10,893
45,393
94,236
70,269
11,299
58,970
1.75
1.74

$

$
$
$

120,651
10,675
43,661
93,045
60,592
33,818
50,602
1.50
1.49

The above unaudited pro forma information related to 2021 excludes nonrecurring merger cost that totaled $5.7
million on an after-tax basis.

On January 7, 2020, the Company completed the acquisition of Maple Leaf Financial, Inc. (“Maple Leaf”), the
parent company of Geauga Savings Bank, with branches located in Cuyahoga and Geauga Counties in Ohio. The
Company expects the acquisition to increase synergies and cost savings resulting from the combining of the two
companies. The transaction involved both cash and 1,398,229 shares of stock totaling $43.0 million. Pursuant to
the terms of the Merger Agreement, common shareholders of Maple Leaf had the right to receive $640.00 in cash or
45.5948 common shares, without par value, of the Company. Holders of outstanding and unexercised warrants to
purchase Maple Leaf Common Shares received an amount in cash equal to the excess of $640.00 over $370.00, the
exercise price of such warrants.

Goodwill of $7.6 million, which is recorded on the balance sheet, arising from the acquisition consisted largely of
synergies and the cost savings resulting from the combining of the entities. The goodwill was determined not to be
deductible for income tax purposes.

67

The following table summarizes the consideration paid for Maple Leaf and the amounts of the assets acquired and
liabilities assumed on the closing date of the acquisition.

Consideration

Cash ........................................................................................................................................ $
Stock .......................................................................................................................................
Fair value of total consideration transferred ................................................................................ $
Fair value of assets acquired

Cash and due from financial institutions ................................................................................ $
Securities available for sale ....................................................................................................
Loans ......................................................................................................................................
Premises and equipment .........................................................................................................
Core deposit intangible...........................................................................................................
Other assets.............................................................................................................................
Total assets acquired............................................................................................................

Fair value of liabilities assumed

Deposits ..................................................................................................................................
Long-term borrowings ...........................................................................................................
Accrued interest payable and other liabilities ........................................................................
Total liabilities .....................................................................................................................
Net assets acquired .............................................................................................................. $

Goodwill created ....................................................................................................................

Total net assets acquired...................................................................................................... $

20,423
22,554
42,977

18,219
69,547
181,280
229
725
6,398
276,398

183,251
54,487
3,257
240,995
35,403
7,574
42,977

NOTE 3 – SECURITIES AVAILABLE FOR SALE

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at
December 31, 2021 and 2020 and the corresponding amounts of gross unrealized gains and losses recognized in
accumulated other comprehensive income (loss):

2021

U.S. Treasury and U.S. government sponsored

entities .......................................................................
State and political subdivisions....................................
Corporate bonds ...........................................................
Mortgage-backed securities - residential .....................
Collateralized mortgage obligations ............................
Small Business Administration....................................
Totals............................................................................

Amortized
Cost

$

93,137
636,724
4,009
663,405
13,303
5,381
$ 1,415,959

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

$

$

32
23,296
50
1,875
153
49
25,455

$

$

(2,338) $
(1,205)
(29)
(10,094)
(71)
0

90,831
658,815
4,030
655,186
13,385
5,430
(13,737) $ 1,427,677

68

2020

U.S. Treasury and U.S. government sponsored

entities .......................................................................
State and political subdivisions....................................
Corporate bonds ...........................................................
Mortgage-backed securities - residential .....................
Collateralized mortgage obligations ............................
Small Business Administration....................................
Totals............................................................................

Amortized
Cost

$

$

11,798
344,160
3,582
157,106
25,654
5,411
547,711

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

$

$

101
22,350
132
4,919
742
151
28,395

$

$

(54) $
(204)
(2)
(243)
(3)
0
(506) $

11,845
366,306
3,712
161,782
26,393
5,562
575,600

The proceeds from sales of available-for-sale securities and the associated gains and losses were as follows:

Proceeds .........................................................................
Gross gains.....................................................................
Gross losses....................................................................

$

$

2021
35,175
863
(25)

$

2020
60,341
394
(824)

2019
33,424
211
(222)

The tax provision (benefit) related to these net realized gains (losses) was $176 thousand, $(90) thousand and $(2)
thousand respectively.

The amortized cost and fair value of the debt securities portfolio are shown by expected maturity. Expected
maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or
without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

Available for sale

Maturity ............................................................................
Within one year..............................................................
One to five years ............................................................
Five to ten years .............................................................
Beyond ten years............................................................

Mortgage-backed securities, collateralized mortgage

obligations and Small Business Administration ............
Totals ...................................................................................

December 31, 2021

Amortized
Cost

$

1,539
14,132
133,000
585,199

Fair Value
1,550
$
14,897
132,717
604,512

682,089
$ 1,415,959

674,001
$ 1,427,677

Securities with a carrying amount of $491 million at December 31, 2021 and $371 million at December 31, 2020
were pledged to secure public deposits and repurchase agreements. Farmers Trust had securities, with a carrying
amount of $102 thousand, at year-end 2021 and $100 thousand at year-end 2020, pledged to qualify as a fiduciary in
the State of Ohio.

In each year, there were no holdings of any issuer that exceeded 10% of stockholders’ equity, except for the U.S.
Government, its agencies and its sponsored entities, which are fully insured.

69

The following table summarizes the investment securities with unrealized losses at December 31, 2021 and 2020
aggregated by major security type and length of time in a continuous unrealized loss position.

2021

Description of Securities

Less than 12 Months
Unrealized
Loss

Fair
Value

12 Months or More
Unrealized
Loss

Fair
Value

Total

Fair
Value

Unrealized
Loss

U.S. Treasury and U.S. government...........
sponsored entities ....................................... $ 81,236 $
State and political subdivisions .................. 103,651
Corporate bonds .........................................
418
Mortgage-backed securities - residential.... 525,792
7,270
Collateralized mortgage obligations...........
Total temporarily impaired......................... $718,367 $ (10,925) $ 74,575 $

(1,960) $ 8,271 $
(1,020)
(2)
(7,872)
(71)

10,020
715
55,569
0

(378) $ 89,507 $
(2,338)
(185) 113,671
(1,205)
1,133
(27)
(29)
(2,222) 581,361
(10,094)
(71)
7,270
(2,812) $792,942 $ (13,737)

0

2020

Description of Securities

Less than 12 Months
Unrealized
Loss

Fair
Value

12 Months or More
Unrealized
Loss

Fair
Value

Total

Fair
Value

Unrealized
Loss

U.S. Treasury and U.S. government
sponsored entities ....................................... $ 8,153 $
State and political subdivisions ..................
Corporate bonds .........................................
Mortgage-backed securities - residential....
Collateralized mortgage obligations...........
Total temporarily impaired......................... $ 91,251 $

19,205
198
63,401
294

(54) $
(204)
(2)
(243)
(3)
(506) $

0 $
0
0
0
0
0 $

0 $ 8,153 $
0
19,205
0
198
63,401
0
294
0
0 $ 91,251 $

(54)
(204)
(2)
(243)
(3)
(506)

70

The Company has adopted ASU 2016-13 that makes improvements to the accounting for credit losses on securities
available for sale. The concept of other than-temporarily impaired securities has been replaced with the allowance
for credit losses. Securities available for sale are evaluated on an individual level and pooling of securities is no
longer an option. During this evaluation process, management considers the extent to which the fair value has been
less than cost, the financial condition and near term prospects of the issuer, and the intent and ability of the
Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using a
discounted cash flow analysis using the effective interest rate as of the security’s purchase date. As of December 31,
2021, the Company’s security portfolio consisted of 842 securities, 207 of which were in an unrealized loss position.
The majority of unrealized losses are related to the Company’s holdings in securities issued by U.S Treasury and
U.S. government sponsored entities, state and political subdivisions, mortgage-backed securities - residential and
collateralized mortgage obligations. The Company does not consider its AFS securities with unrealized losses to be
attributable to credit-related factors, as the unrealized losses have occurred as a result of changes in noncredit related
factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit
deterioration. As of December 31, 2021 the Company has not recorded an allowance for credit losses on AFS
securities.

Equity Securities

The Company also holds equity securities which include $14.7 million in Small Business Investment Company
(“SBIC”) partnership investments as well as $228 thousand in local and regional bank holdings and other
miscellaneous equity funds at December 31, 2021. Gains were recognized in income in 2021 and 2020 in
compliance with ASU 2016-01, which requires all equity securities to be measured at their fair value with changes
in fair value being recognized through the statements of net income.

71

NOTE 4 – LOANS

Acquired loans were transferred and are included in originated loans during 2021. This is to align with the
calculation of the allowance for credit losses being used under the CECL model. Loans by class at year end were as
follows:

Originated loans:
Commercial real estate

Owner occupied ................................................................................................... $
Non-owner occupied ............................................................................................
Farmland ...............................................................................
Other.....................................................................................................................
Commercial................................................................................................................

Commercial and industrial....................................................
Agricultural...........................................................................

Residential real estate ................................................................................................
1-4 family residential............................................................................................
Home equity lines of credit ..................................................................................
Consumer ...................................................................................................................
Indirect..................................................................................................................
Direct ....................................................................................................................
Other .....................................................................................................................

Total originated loans................................................................................... $

Acquired loans:
Commercial real estate...............................................................................................

Owner occupied.................................................................................................... $
Non-owner occupied ............................................................................................
Farmland ...............................................................................
Other .....................................................................................................................
Commercial................................................................................................................

Commercial and industrial....................................................
Agricultural...........................................................................

Residential real estate ................................................................................................
1-4 family residential............................................................................................
Home equity lines of credit ..................................................................................
Consumer ...................................................................................................................
Direct ....................................................................................................................
Other .....................................................................................................................
Total acquired loans ........................................................................................
Net deferred loan (fees) costs ....................................................................................
Allowance for credit losses........................................................................................

Net loans.................................................................................................... $

2021

2020

340,369
533,240
177,706
138,282

313,836
54,659

453,635
127,433

159,006
21,121
9,395
2,328,682

0
0
0
0

0
0

0
0

$

$

$

215,187
309,777
156,277
78,140

385,831
44,922

324,723
92,968

164,620
23,348
9,868
1,805,661

45,101
52,863
26,080
12,868

18,662
4,850

89,118
17,383

0
0
0
2,400
(29,386)
2,301,696

$

5,128
97
272,150
233
(22,144)
2,055,900

72

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.

Allowance for credit loss activity

The following tables present the activity in the allowance for credit losses by portfolio segment for year ended
December 31, 2021, and the activity in the allowance for loan losses by portfolio segment for the years ended
December 31, 2020 and 2019:

December 31, 2021
Allowance for credit losses

Commercial
Real Estate Commercial

Residential
Real Estate Consumer

Total

Beginning balance ......................................... $
Impact of CECL adoption .............................
Provision for credit losses .............................
PCD ACL on loans acquired.........................
Loans charged off..........................................
Recoveries .....................................................
Total ending allowance balance.......................... $

10,746 $
(2,137)
6,226
1,081
(70)
33
15,879 $

5,018 $
259
(349)
210
(388)
199
4,949 $

3,687 $
193
1,121
4
(297)
162
4,870 $

2,693 $
3,845
(2,349)
0
(912)
411
3,688 $

22,144
2,160
4,649
1,295
(1,667)
805
29,386

December 31, 2020
Allowance for loan losses...................................

Commercial
Real Estate Commercial

Residential
Real Estate Consumer

Total

Beginning balance ......................................... $
Provision for loan losses ...............................
Loans charged off..........................................
Recoveries .....................................................
Total ending allowance balance.......................... $

6,127 $
4,710
(122)
31
10,746 $

2,443 $
2,976
(412)
11
5,018 $

3,032 $
742
(172)
85
3,687 $

2,885 $
672
(1,347)
483
2,693 $

14,487
9,100
(2,053)
610
22,144

December 31, 2019
Allowance for loan losses...................................

Commercial
Real Estate Commercial

Residential
Real Estate Consumer

Total

Beginning balance ......................................... $
Provision for loan losses ...............................
Loans charged off..........................................
Recoveries .....................................................
Total ending allowance balance.......................... $

5,294 $
874
(45)
4
6,127 $

2,200 $
430
(200)
13
2,443 $

2,982 $
392
(400)
58
3,032 $

3,116 $
754
(1,702)
717
2,885 $

13,592
2,450
(2,347)
792
14,487

73

The following table presents the recorded investment in nonaccrual and loans past due 90 days or more still on
accrual by class of loans as of December 31, 2021 and 2020:

2021

Loans Past Due
90 Days or More

Nonaccrual

Still Accruing Nonaccrual

2020

Loans Past Due
90 Days or More
Still Accruing

Originated loans:
Commercial real estate

Owner occupied...................................................... $
Non-owner occupied ..............................................
Farmland.................................................................
Other .......................................................................
Commercial..................................................................
Commercial and industrial .....................................
Agricultural ............................................................
Residential real estate ..................................................
1-4 family residential..............................................
Home equity lines of credit ....................................
Consumer .....................................................................
Indirect....................................................................
Direct ......................................................................
Other .......................................................................

433 $

2,511
274
60

7,190
40

3,363
917

455
227
0

Total originated loans ....................................... $

15,470 $

Acquired loans:
Commercial real estate.................................................

Owner occupied...................................................... $
Non-owner occupied ..............................................
Farmland.................................................................
Commercial..................................................................
Commercial and industrial .....................................
Agricultural ............................................................
Residential real estate ..................................................
1-4 family residential..............................................
Home equity lines of credit ....................................
Consumer .....................................................................
Direct ......................................................................

Total acquired loans .......................................... $
Total loans ................................................... $

0 $
0
0

0
0

0
0

0 $
0
0

54
0

459
36

123
53
0
725 $

0 $
0
0

0
0

0
0

0 $
0
0

3,312
205

866
603

648
157
1
5,792 $

27 $
362
471

477
4

4,128
186

335
0
0

22
0

223
0

64
111
5
760

0
0
95

0
0

1,469
0

6
1,570
2,330

0
0 $
15,470 $

0
0 $
725 $

58
5,713 $
11,505 $

74

The following tables present the aging of the recorded investment in past due loans as of December 31, 2021 and
2020 by class of loans. Note that loans on a current modification to defer payments under the CARES Act are
included in loans not past due.

30-59
Days
Past
Due

60-89
Days
Past
Due

90 Days or More
Past Due
and Nonaccrual

Total
Past
Due

Loans Not
Past Due

Total

433 $ 1,094 $ 338,880 $ 339,974
532,706
177,417
137,994

529,490
177,143
137,878

3,216
274
116

2,511
274
60

7,244
40

3,822
953

7,600
168

9,351
1,045

304,932
54,706

312,532
54,874

443,441
126,405

452,792
127,450

578
280
0

164,760
21,188
9,395
16,195 $ 25,086 $2,305,996 $2,331,082

163,112
20,614
9,395

1,648
574
0

December 31, 2021
Commercial real estate

Owner occupied.................................... $
Non-owner occupied ............................
Farmland...............................................
Other .....................................................
Commercial................................................
Commercial and industrial ...................
Agricultural ..........................................

Residential real estate

1-4 family residential............................
Home equity lines of credit ..................
Consumer ...................................................
Indirect..................................................
Direct ....................................................
Other .....................................................

70 $
394
0
56

256
100

591 $
311
0
0

100
28

4,452
80

1,077
12

795
203
0

275
91
0

Total loans....................................... $ 6,406 $ 2,485 $

75

December 31, 2020
Originated loans:
Commercial real estate

30-59
Days
Past
Due

60-89
Days
Past
Due

90 Days or More
Past Due
and Nonaccrual

Total
Past
Due

Loans Not
Past Due

Total

Owner occupied.................................... $
Non-owner occupied ............................
Farmland...............................................
Other .....................................................

0 $
0
0
261

0 $
0
0
0

335 $
0
0
0

335 $ 214,460 $ 214,795
309,216
156,053
77,986

309,216
156,053
77,725

0
0
261

Commercial

Commercial and industrial ...................
Agricultural ..........................................

Residential real estate

1-4 family residential............................
Home equity lines of credit ..................

Consumer

Indirect..................................................
Direct ....................................................
Other .....................................................

356
45

1,668
419

1,046
284
24

61
255

974
0

285
120
22

Total originated loans:

$ 4,103 $ 1,717 $

Acquired loans:
Commercial real estate

Owner occupied.................................... $
Non-owner occupied ............................
Farmland...............................................
Other .....................................................

Commercial

Commercial and industrial ...................
Agricultural ..........................................

Residential real estate

0 $

197
0
0

19
4

1-4 family residential............................
Home equity lines of credit ..................

1,954
23

Consumer

Direct ....................................................
Other .....................................................

20
0

0 $
0
0
0

390
0

821
0

49
0

Total acquired loans ........................ $ 2,217 $ 1,260 $
Total loans ................................. $ 6,320 $ 2,977 $

3,334
205

1,089
603

3,751
505

3,731
1,022

378,594
44,555

382,345
45,060

320,129
91,957

323,860
92,979

712
268
6

170,288
23,461
9,868
6,552 $ 12,372 $1,793,539 $1,805,911

168,245
22,789
9,816

2,043
672
52

27 $
362
566
0

477
4

27 $
559
566
0

886
8

5,597
186

8,372
209

45,072
52,295
25,513
12,868

17,772
4,841

80,745
17,175

45,099
52,854
26,079
12,868

18,658
4,849

89,117
17,384

64
0

133
0

5,128
97
7,283 $ 10,760 $ 261,373 $ 272,133
13,835 $ 23,132 $2,054,912 $2,078,044

4,995
97

Troubled Debt Restructurings:

Total troubled debt restructurings were $3.9 million and $4.1 million at December 31, 2021 and 2020 respectively.
The Company allocated $109 thousand and $81 thousand of specific reserves to customers whose loan terms have
been modified in troubled debt restructurings as of December 31, 2021 and 2020, respectively. There were no
commitments to lend additional amounts to borrowers with loans that were classified as troubled debt restructurings
at December 31, 2021 and 2020.

76

During the years ending December 31, 2021, 2020 and 2019, the terms of certain loans were modified as troubled
debt restructurings. The modification of the terms of such loans included one, or a combination of the following: a
reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower
than the current market rate for new debt with similar risk; an extension of an interest only period; a deferral of
principal payments; a capitalization of interest and/or escrow or a legal concession.

Troubled debt restructuring modifications involved a reduction of the notes stated interest rate in the range of 0.24%
to 4.075%. There were also extensions of the maturity dates on these and other troubled debt restructurings in the
range of 22 days to 361 months.

The following tables present loans by class modified as troubled debt restructurings that occurred during the years
ending December 31, 2021, 2020 and 2019:

December 31, 2021
Troubled Debt Restructurings:

Commercial

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of

Loans

Commercial and industrial......................................................
Residential real estate...................................................................
1-4 family residential..............................................................
Home equity lines of credit ....................................................
Indirect .........................................................................................
Consumer .....................................................................................
Total loans.........................................................................

4

11
7
13
4
39

22

636
264
124
17
1,063

$

22

624
264
124
17
1,051

$

The troubled debt restructurings described above increased the allowance for credit losses by $127 thousand and
resulted in charge offs of $129 thousand during the year ended December 31, 2021.

December 31, 2020

Troubled Debt Restructurings:
Originated loans:
Commercial

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of

Loans

Agricultural.............................................................................
Residential real estate...................................................................
1-4 family residential..............................................................
Home equity lines of credit ....................................................
Indirect .........................................................................................
Consumer .....................................................................................
Total originated loans........................................................

Acquired loans:

Residential real estate...................................................................
1-4 family residential..............................................................
Total acquired loans ..........................................................
Total loans ...................................................................

1

7
4
29
1
42

3
3
45

$

$

$
$

21

$

261
100
182
15
579

140
140
719

$

$
$

21

262
102
182
15
582

144
144
726

The troubled debt restructurings described above increased the allowance for loan losses by $65 thousand and
resulted in charge offs of $65 thousand during the year ended December 31, 2020.

77

December 31, 2019

Troubled Debt Restructurings:
Originated loans:
Commercial

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number of

Loans

Commercial and industrial......................................................
Residential real estate...................................................................
1-4 family residential..............................................................
Home equity lines of credit ....................................................
Indirect .........................................................................................
Consumer .....................................................................................
Total originated loans........................................................

Acquired loans:

Commercial real estate

Farmland.................................................................................

Commercial

Commercial and industrial......................................................

Residential real estate

1-4 family residential..............................................................
Home equity lines of credit ....................................................
Consumer .....................................................................................
Total acquired loans ..........................................................
Total loans ...................................................................

1

6
3
39
2
51

3

1

4
1
3
12
63

$

$

$
$

12

$

178
90
337
46
663

527

27

201
17
14
786
1,449

$

$
$

12
181
94
337
46
0
670

527

27

205
17
14
790
1,460

The troubled debt restructurings described above increased the allowance for loan losses by $126 thousand and
resulted in charge offs of $126 thousand during the year ended December 31, 2019.

The Company offered three-month deferrals upon request by borrowers. For those borrowers in industries that were
greatly impacted by COVID-19, additional deferrals were considered and granted beyond the initial three month
period. The range of the deferred months for subsequent requests were three to twelve months. The decline in
deferred loans and balances is due to borrowers not requesting additional deferments and most continued to pay
under the original terms of their loan.

78

Farmers is also a preferred SBA lender and dedicated significant additional staff and other resources to help our
customers complete and submit their applications and supporting documentation for loans offered under the new
Paycheck Protection Program (PPP) under CARES, so they could obtain SBA approval and receive funding as
quickly as possible. During the period of the PPP program, the Company facilitated PPP assistance to 2,134
business customers totaling $256.4 million. The Company, on behalf of its customers, began processing borrower
applications for PPP forgiveness at the beginning of September 2020. The SBA has up to ninety days to review an
application for PPP forgiveness and provide a decision at the end of that review. Once forgiveness of the PPP loan
has been communicated and payment is received from the SBA, the Company will record the cash received from the
SBA, pay-off the loans based on the amount of forgiveness provided and accelerate the amount of net deferred loan
fees/costs recognized for the portion of the PPP loans that are forgiven. During the period ended December 31,
2021, the Company has received life to date payments from the SBA for forgiveness of these loans totaling $254
million, or approximately 99.1% of the loans originated in 2020. The Company processed $107.9 million in new
loans for PPP funding during 2021. The Company has received payments from the SBA for forgiveness of loans
totaling $72.3 million, or approximately 67.1% of the PPP loans originated in 2021.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to
service their debt such as: current financial information, historical payment experience, credit documentation, public
information and current economic trends, among other factors. The Company establishes a risk rating at origination
for all commercial loan and commercial real estate relationships. For relationships over $1 million management
monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management
also affirms the risk ratings for the loans and leases in their respective portfolios on an annual basis. The Company
uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s
If left uncorrected, these potential weaknesses may result in deterioration of the repayment
close attention.
prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not
adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness
or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility
that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard,
with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are
considered to be pass rated loans.

79

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

December 31, 2021

Commercial real estate

Pass

Special
Mention

Sub
standard

Total

Owner occupied....................................................... $
Non-owner occupied................................................
Farmland..................................................................
Other ........................................................................

330,754
495,170
174,580
137,063

Commercial

Commercial and industrial.......................................
Agricultural..............................................................

301,879
54,394
Total loans.......................................................... $ 1,493,840

December 31, 2020
Originated loans:
Commercial real estate

Pass

Owner occupied....................................................... $
Non-owner occupied................................................
Farmland..................................................................
Other ........................................................................

208,289
290,773
153,225
77,432

Commercial

Commercial and industrial.......................................
Agricultural..............................................................

372,083
44,527
Total originated loans......................................... $ 1,146,329

Acquired loans:
Commercial real estate

Owner occupied....................................................... $
Non-owner occupied................................................
Farmland..................................................................
Other ........................................................................

44,031
50,053
24,637
12,868

Commercial

Commercial and industrial.......................................
Agricultural..............................................................

16,246
4,481
152,316
Total loans .................................................... $ 1,298,645

Total acquired loans ........................................... $

$

$

$

$

$

$
$

5,006
19,366
2,160
784

1,190
397
28,903

Special
Mention

5,121
11,240
2,464
387

1,522
320
21,054

87
49
100
0

0
303
539
21,593

$

$

$

$

$

$
$

$

4,214
18,170
677
147

339,974
532,706
177,417
137,994

9,463
83
32,754

312,532
54,874
$ 1,555,497

Sub
standard

Total

$

1,385
7,203
364
167

214,795
309,216
156,053
77,986

8,740
213
18,072

382,345
45,060
$ 1,185,455

$

981
2,752
1,342
0

45,099
52,854
26,079
12,868

2,412
65
7,552
25,624

18,658
4,849
160,407
$
$ 1,345,862

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For
residential, consumer and indirect loan classes, the Company also evaluates credit quality based on the aging status
of the loan, which was previously presented, and by payment activity.

80

The following table presents the recorded investment in residential, consumer and indirect auto loans based on
payment activity. Nonperforming loans are loans past due 90 days and still accruing interest and nonaccrual loans.

December 31, 2021

Residential Real Estate

1-4 Family
Residential

Home Equity Lines
of Credit

Consumer

Indirect

Direct

Other

Performing.................................................... $ 448,970 $
Nonperforming .............................................

3,822

Total loans............................................... $ 452,792 $

126,497 $ 164,182 $ 20,908 $
578
127,450 $ 164,760 $ 21,188 $

953

280

9,395
0
9,395

December 31, 2020
Originated loans:

Residential Real Estate

1-4 Family
Residential

Home Equity Lines
of Credit

Consumer

Indirect

Direct

Other

92,376 $ 169,576 $ 23,193 $
712
92,979 $ 170,288 $ 23,461 $

603

268

5,064
17,198
64
186
17,384 $
5,128 $
110,363 $ 170,288 $ 28,589 $

0
0
0 $

9,862
6
9,868

97
0
97
9,965

Performing.................................................... $ 322,771 $
Nonperforming .............................................

1,089

Total originated loans ............................. $ 323,860 $

Acquired loans:

Performing....................................................
Nonperforming .............................................

83,520
5,597
89,117 $
Total loans ......................................... $ 412,977 $

Total acquired loans ................................ $

81

The following table presents total loans by risk categories and year of origination.

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving
Loans

Total

$177,091 $143,421 $169,670 $121,520 $107,577 $221,235 $ 22,473 $ 962,987
25,156
22,531

6,946
14,721

3,298
3,321

7,140
2,664

1,017
0

6,755
498

0
721

0
606

$178,108 $144,142 $179,474 $128,773 $114,196 $242,902 $ 23,079 $1,010,674

$ 96,395 $ 53,766 $ 28,669 $ 21,617 $ 12,735 $ 18,036 $ 70,661 $ 301,879
1,190
9,463

105
1,676

572
3,053

0
2,155

124
1,296

108
312

278
276

3
695

$100,020 $ 55,547 $ 29,089 $ 22,171 $ 13,433 $ 20,191 $ 72,081 $ 312,532

$ 45,015 $ 51,913 $ 28,652 $ 29,372 $ 19,032 $ 34,069 $ 20,921 $ 228,974
2,556
761

2,060
0

0
277

0
353

231
30

233
19

0
20

32
62

$ 45,368 $ 52,165 $ 28,746 $ 29,392 $ 21,092 $ 34,346 $ 21,182 $ 232,291

$ 96,660 $ 93,853 $ 39,591 $ 32,227 $ 42,420 $135,887 $

0
48

74
0

134
111

82
28

95
380

48
7,679

3,475 $ 444,113
433
8,246

0
0

$ 96,708 $ 93,927 $ 39,836 $ 32,337 $ 42,895 $143,614 $

3,475 $ 452,792

$

820 $
0
0

959 $
0
0

233 $
0
20

468 $
0
142

752 $
0
74

2,765 $ 119,430 $ 125,427
48
48
1,975
149

0
1,590

$

820 $

959 $

253 $

610 $

826 $

4,355 $ 119,627 $ 127,450

As of December 31
Commercial real estate

Risk Rating

Pass................................
Special mention .............
Substandard ...................
Total commercial real
estate loans .................

Commercial

Risk Rating

Pass................................
Special mention .............
Substandard ...................

Total commercial
loans ...........................

Agricultural

Risk Rating

Pass................................
Special mention .............
Substandard ...................

Total agricultural
loans ...........................

Residential real estate

Risk Rating

Pass................................
Special mention .............
Substandard ...................
Total residential real
estate loans .................

Home equity lines of credit

Risk Rating

Pass................................
Special mention .............
Substandard ...................
Total home equity
lines of credit..............

Consumer

Risk Rating

Pass................................
Special mention .............
Substandard ...................
Total consumer loans .

$ 61,704 $ 46,501 $ 35,581 $ 21,184 $

9,532 $ 11,504 $

0
105

0
224

0
294

0
106

0
146

0
363

$ 61,809 $ 46,725 $ 35,875 $ 21,290 $

9,678 $ 11,867 $

8,099 $ 194,105
0
1,238
8,099 $ 195,343

0
0

The Company adopted ASU 2016-13 to calculate the allowance for credit losses which requires projecting credit
losses over the lifetime of the credits. The ACL is adjusted through the provision for credit losses and reduced by
net charge offs of loans. Although the Company has a diversified loan portfolio, the credit risk in the loan portfolio

82

is largely influenced by general economic conditions and trends of the counties and markets in which the debtors
operate, and the resulting impact on the operations of borrowers or on the value of any underlying collateral.

The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s
loan portfolio segments. These segments are disaggregated into the loan pools for monitoring. A model of risk
characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans, as
well as existing economic conditions and supportable forecasts used to determine credit loss assumptions.

The Company uses two methodologies to analyze loan pools. The cohort method and the PD/LGD. Cohort relies
on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans
are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial
assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics
include, but aren’t limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type,
size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan
portfolios.

The probability of default portion of PD/LGD is defined by the Company as 90 days past due, placed on non-
accrual, becomes a troubled debt restructuring or is partially, or wholly, charged-off. Typically, a one-year time
period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common
way to apply PDs. Loss given default LGD is to determine the percentage of loss by facility or collateral type.
LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses
PD/LGD primarily for commercial loan portfolios.

The following table presents the loan pools and the associated methodology used during the calculation of the
allowance for credit losses in 2021.

Portfolio Segments

Loan Pool

Methodology

Loss Drivers

Residential real estate

Home Equity Lines of Credit
Consumer Finance

Commercial

Commercial real estate

1-4 Family Residential Real
Estate - 1st Liens
1-4 Family Residential Real
Estate - 2nd Liens
Home Equity Lines of Credit
Cash Reserves
Direct
Indirect
Commercial and Industrial
Agricultural
Municipal
Owner Occupied
Non-Owner Occupied
Multifamily
Farmland
Construction

Cohort

Credit Loss History

Cohort
Cohort
Cohort
Cohort
Cohort
PD/LGD
PD/LGD
PD/LGD
PD/LGD
PD/LGD
PD/LGD
PD/LGD
PD/LGD

Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History
Credit Loss History

According to accounting standard an entity may make an accounting policy election not to measure an allowance for
credit losses for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance
in a timely manner. The Company has made the accounting policy election not to measure an allowance for credit
losses for accrued interest receivables for all loan segments. Current policy dictates that a loan will be placed on
nonaccrual status, with the current accrued interest receivable balance being written off, upon the loan being 90 days
delinquent or when the loan is deemed to be collateral dependent and the collateral analysis shows insufficient
collateral coverage based on a current assessment of the value of the collateral.

83

In addition, ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded
commitments. To accomplish this, the Company must first establish a loss expectation for extended (funded)
commitments. This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion
of unfunded commitments not considered unilaterally cancelable, and considered by the company’s management as
likely to fund over the life of the instrument. At December 31, 2021, the Company had $607 million in unfunded
commitments and set aside $533 thousand in anticipated credit losses. This reserve is recorded in other liabilities as
opposed to the ACL.

The determination of ACL is complex and the Company makes decisions on the effects of factors that are inherently
uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and
judgements as to the facts and circumstances related to particular situations or credits. There may be significant
changes in the ACL in future periods determined by prevailing factors at that point in time along with future
forecasts.

Purchased Loans

As a result of the Cortland merger, the Company acquired $478.2 million in loans, excluding $4.0 million of loans
held for sale. Par value of purchased loans was as follows (in thousands):

Par value of acquired loans at acquisition ...............................................................................
Net purchase discount..............................................................................................................
Allowance for credit losses of PCD loans...............................................................................
Fair value of loans at acquisition ..............................................................................

$

$

2021

483,666
(4,207)
(1,295)
478,164

Under ASU Topic 326, when loans are purchased with evidence of more than significant deterioration of credit, they
are accounted for as PCD. PCD loans acquired in a transaction are marked to fair value and a mark on yield is
recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans
are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. On
November 1, 2021, the Company acquired PCD loans with a fair value of $34.3 million, credit discount of $1.3
million and a noncredit discount of $1.1 million. The outstanding balance at December 31, 2021 and related
allowance on these loans is as follows (in thousands):

Loan Balance

ACL Balance

Commercial real estate

Owner Occupied ...................................................................................... $
Non-owner Occupied...............................................................................
Other ........................................................................................................

Commercial

Commercial and industrial.......................................................................
Residential real estate....................................................................................
1-4 family residential...............................................................................

$

3,066
24,694
788
28,548

2,911

505

89
804
3
896

196

4

Total ........................................................................................................ $

31,964

$

1,096

At December 31, 2020, the Company had $917 thousand in loans that were accounted for as purchase credit
impaired. Purchase credit impaired loans are loans acquired through business combinations with deteriorated credit
quality that occurred subsequent to origination and have the probability that the Company would be unable to collect
all contractually required payments from the borrower.

84

NOTE 5 – REVENUE FROM CONTRACTS WITH CUSTOMERS

All material revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest
income. ASC 606 rules govern the disclosure of revenue tied to contracts. The following table presents the
Company’s noninterest income by revenue stream and reportable segment, net of eliminations, for the years ended
December 31, 2021, 2020 and 2019. Items outside the scope of ASC 606 are noted as such.

(In Thousands of Dollars)
December 31, 2021
Service charges on deposit accounts........................................... $
Debit card and EFT fees .............................................................
Trust fees ....................................................................................
Insurance agency commissions...................................................
Retirement plan consulting fees..................................................
Investment commissions.............................................................
Other (outside the scope of ASC 606)........................................

Total noninterest income....................................................... $

(In Thousands of Dollars)
December 31, 2020
Service charges on deposit accounts........................................... $
Debit card and EFT fees .............................................................
Trust fees ....................................................................................
Insurance agency commissions...................................................
Retirement plan consulting fees..................................................
Investment commissions.............................................................
Other (outside the scope of ASC 606)........................................

Total noninterest income....................................................... $

(In Thousands of Dollars)
December 31, 2019
Service charges on deposit accounts........................................... $
Debit card and EFT fees .............................................................
Trust fees ....................................................................................
Insurance agency commissions...................................................
Retirement plan consulting fees..................................................
Investment commissions.............................................................
Other (outside the scope of ASC 606)........................................

Total noninterest income....................................................... $

Trust
Segment

Bank
Segment

Totals

0
0
9,438
0
1,421
0
0
10,859

Trust
Segment

0
0
7,632
0
1,523
0
0
9,155

Trust
Segment

0
0
7,475
0
1,489
0
0
8,964

$

$

$

$

$

$

3,660
5,144
0
3,456
0
2,276
12,798
27,334

Bank
Segment

3,682
4,264
0
3,124
0
1,530
14,406
27,006

Bank
Segment

4,514
3,886
0
2,919
0
1,406
6,353
19,078

$

$

$

$

$

$

3,660
5,144
9,438
3,456
1,421
2,276
12,798
38,193

Totals

3,682
4,264
7,632
3,124
1,523
1,530
14,406
36,161

Totals

4,514
3,886
7,475
2,919
1,489
1,406
6,353
28,042

85

A description of the Company’s revenue streams under ASC 606 follows:

Service Charges on Deposit Accounts – The Company earns fees from its deposit customers for transaction-based,
account maintenance, and overdraft services. Management
reviewed the deposit account agreements, and
determined that the agreements can be terminated at any time by either the Bank or the account holder. Transaction
fees, such as balance transfers, wires and overdraft charges are settled the day the performance obligation is satisfied.
The Bank’s monthly service charges and maintenance fees are for services provided to the customer on a monthly
basis and are considered a series of services that have the same pattern of transfer each month. The review of
service charges assessed on deposit accounts, included the amount of variable consideration that is a part of the
monthly charges. It was found that the waiver of service charges due to insufficient funds and dormant account fees
is immaterial and would not require a change in the accounting treatment for these fees under the new revenue
standards.

Debit Card and EFT Fees – Customers and the Bank have an account agreement and maintain deposit balances
with the Bank. Customers use a bank issued debit card to purchase goods and services, and the Bank earns
interchange fees on those transactions, typically a percentage of the sale amount of the transaction. The Bank
records the amount due when it receives the settlement from the payment network. Payments from the payment
network are received and recorded into income on a daily basis. There are no contingent debit card or EFT fees
recorded by the Company that could be subject to a clawback in future periods.

Trust Fees – Services provided to Farmers Trust customers are a series of distinct services that have the same
pattern of transfer each month. Fees for trust accounts are billed and drafted from trust accounts monthly. The
Company records these fees on the income statement on a monthly basis. Fees are assessed based on the total
investable assets of the customer’s trust account. A signed contract between the Company and the customer is
maintained for all customer trust accounts with payment terms identified.
It is probable that the fees will be
collectible as funds being managed are accessible by the asset manager. Past history of trust fee income recorded by
the Company indicates that it is highly unlikely that a significant reversal could occur. There are no contingent
incentive fees recorded by the Company that could be subject to a clawback in future periods.

Insurance Agency Commissions – Insurance agency commissions are received from insurance carriers for the
agency’s share of commissions from customer premium payments. These commissions are recorded into income
when checks are received from the insurance carriers, and there is no contingent portion associated with these
commission checks. There may be a short time-lag in recording revenue when cash is received instead of recording
the revenue when the policy is signed by the customer, but the time lag is insignificant and does not impact the
revenue recognition process.

Insurance also receives incentive checks from the insurance carriers for achieving specified levels of production
with particular carriers. These amounts are recorded into income when a check is received, and there are no
contingent amounts associated with these payments that may be clawed back by the carrier in the future. Similar to
the monthly commissions explained in the preceding paragraph, there may be a short time-lag in recording incentive
revenue on a cash basis as opposed to estimating the amount of incentive revenue expected to be earned, this does
not materially impact the recognition of Insurance revenue.
If there were any amounts that would need to be
refunded for one specific Insurance customer, management believes the reversal would not be significant.

Other potential situations surrounding the recognition of Farmers Insurance revenue include the estimating potential
refunds due to the likely cancellation of a percentage of customers cancelling their policies and recording revenue at
the time of policy renewals. Management concluded that since Farmers Insurance agency commissions represent
only 2.2% of the Company’s total revenue in 2021, adjusting the current practice of recording insurance revenue for
these situations would not have a material impact on the reporting of total revenue.

Retirement Plan Consulting Fees – The fees earned from retirement plan consulting are generated by Farmers
Trust. Revenue is recognized based on the level of work performed for the client. Any payments that are received
for work to be performed in the future are recorded in a deferred revenue account, and recorded into income when
the fees are earned. Retirement plan consulting fees represent only 0.9% of the Company’s total revenue in 2021,
and therefore management has concluded that any adjustment of revenue for one particular customer for a refund or
any other reason would be insignificant and would not materially impact the Company’s total revenue.

86

Investment Commissions – Investment commissions are earned through the sales of non-deposit investment
products to customers of the Company. The sales are conducted through a third-party broker-dealer. When the
commissions are received and recorded into income on the Bank’s income statement, there is no contingent portion
that may need to be refunded back to the broker dealer.
Investment commissions represent only 1.5% of the
Company’s total revenue in 2021, and therefore management has concluded that any adjustment of revenue for a
particular customer for a refund or any other reason would be insignificant and would not materially impact the
Company’s total revenue.

Other – Income items included in “Other” are Bank owned life insurance income, security gains, net gains on the
sale of loans and other operating income. Any amounts within the scope of ASC 606 are deemed immaterial.

NOTE 6 – LOAN SERVICING

The Company has retained servicing rights to Mortgage loans sold to the Federal Home Loan Mortgage Corporation.
Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at year-end are
as follows:

Mortgage loan portfolio serviced for:

FHLMC ................................................................................................. $

494,688

$

430,233

2021

2020

Custodial escrow balances maintained in connection with serviced loans were $4.0 million at December 31, 2021
and $3.4 million at December 31, 2020.

Mortgage servicing rights are recorded on the balance sheets as other assets. Activity for mortgage servicing rights
for years ended December 31, 2021, 2020 and 2019 are as follows:

Servicing rights:

Beginning balance ................................................................... $
Additions .................................................................................
Amortization to expense..........................................................
Ending balance ........................................................................ $

2021

3,198
1,556
(1,351)
3,403

$

$

2020

1,721
2,429
(952)
3,198

$

$

2019

1,468
813
(560)
1,721

There was no valuation allowance required for mortgage servicing rights at December 31, 2021, 2020 and 2019.

NOTE 7 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the
ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a reporting entity’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.

87

The Company used the following methods and significant assumptions to estimate the fair value of each type of
financial instrument:

Investment Securities

The Company uses a third party service to estimate fair value on available for sale securities on a monthly basis.
The Company uses the exit price notion when measuring the fair value of financial instruments for disclosure
purposes. The Company’s service provider is considered a leading evaluation pricing service for U.S. domestic
fixed income securities and complies fully with exit pricing requirements. They subscribe to multiple third-party
pricing vendors, and supplement that information with matrix pricing methods. The fair values for investment
securities, which consist of equity securities that are recorded at fair market value, are determined by quoted market
prices in active markets, if available (Level 1). The equity securities change in fair market value is recorded in the
income statements. For securities where quoted prices are not available, fair values are calculated based on quoted
prices for similar assets in active markets, quoted prices for similar assets in markets that are not active or inputs
other than quoted prices, which provide a reasonable basis for fair value determination. Such inputs may include
interest rates and yield curves, volatilities, prepayment speeds, credit risks and default rates. Inputs used are derived
principally from observable market data (Level 2). For securities where quoted prices or market prices of similar
securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level
3). The fair values of Level 3 investment securities are determined by using unobservable inputs to measure fair
value of assets for which there is little, if any market activity at the measurement date, using reasonable inputs and
assumptions based on the best information at the time, to the extent that inputs are available without undue cost and
effort. For the years ended December 31, 2021 and 2020 the fair value of Level 3 investment securities was
immaterial. At December 31, 2021, the Company determined that no securities that had a fair value less than
amortized cost was as a result of credit deterioration as outlined in ASU 2016-13.

Derivative Instruments

The fair value of derivative instruments is based on valuation models using observable market data as of the
measurement date. The loan agreement containing a two-way yield maintenance provision if invoked is expected to
exactly offset the fair value of unwinding the swap. The yield maintenance provision represents an embedded
derivative which is bifurcated from the host loan contract and, as such, the swaps and embedded derivatives are not
designated as hedges (Level 2).

Collateral Dependent Loans

Fair value estimates of collateral dependent loans that are individually reviewed are based on the fair value of the
collateral, less estimated costs to sell. Loans carried at fair value generally receive specific allocations of the
allowance for credit losses in 2021 and allowance for loan losses in prior periods. For collateral dependent loans,
fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation
approach or a combination of approaches including comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and
income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the
inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the
borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical
knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge
of the client and client’s business, resulting in a Level 3 fair value classification. These loans are evaluated on a
quarterly basis for additional and adjusted accordingly.

Other Real Estate Owned

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when
acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value
less estimated costs to sell. Fair values are commonly based on recent real estate appraisals. These appraisals may
use a single valuation approach or a combination of approaches including comparable sales and the income
approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for

88

differences between the comparable sales and income data available. Such adjustments are usually significant and
typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent loans and other real estate owned are performed by certified general
appraisers (for commercial and commercial real estate properties) or certified residential appraisers (for residential
properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a
member of the Appraisal Department reviews the assumptions and approaches utilized in the appraisal as well as the
overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide
statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the
most recent appraised value to determine what adjustments should be made to appraisals to arrive at fair value.

Assets measured at fair value on a recurring basis are summarized below:

Fair Value Measurements at December 31, 2021 Using:

Financial Assets

Investment securities available-for sale

U.S. Treasury and U.S. government sponsored entities ................ $
State and political subdivisions .....................................................
Corporate bonds.............................................................................
Mortgage-backed securities-residential .........................................
Collateralized mortgage obligations ..............................................
Small Business Administration......................................................

Equity securities

Equity securities at fair value ........................................................
Other equity investments measured at net asset value...................

Total investment securities ..................................................... $

Carrying
Value

90,831
658,815
4,030
655,186
13,385
5,430

228
14,721
1,442,626

Interest rate swaps ................................................................................ $

4,261

Financial Liabilities

Interest rate swaps ................................................................................ $

4,261

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

$

$

$

$

0
0
0
0
0
0

228
n/a
228

0

0

$

$

$

$

90,831
658,815
4,030
655,183
13,385
5,430

0
n/a
1,427,674

4,261

4,261

$

$

$

$

0
0
0
3
0
0

0
n/a
3

0

0

Fair Value Measurements at December 31, 2020 Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Financial Assets

Investment securities available-for sale

U.S. Treasury and U.S. government sponsored entities ................ $
State and political subdivisions .....................................................
Corporate bonds.............................................................................
Mortgage-backed securities-residential .........................................
Collateralized mortgage obligations ..............................................
Small Business Administration......................................................

Equity securities

Equity securities at fair value ........................................................
Other equity investments measured at net asset value...................

Total investment securities ..................................................... $

Interest rate swaps ................................................................................ $

11,845
366,306
3,712
161,782
26,393
5,562

538
6,343
582,481

4,221

Financial Liabilities

Interest rate swaps ................................................................................ $

4,221

$

$

$

$

0
0
0
0
0
0

538
n/a
538

0

0

$

$

$

$

11,845
366,306
3,712
161,778
26,393
5,562

0
n/a
575,596

4,221

4,221

$

$

$

$

0
0
0
4
0
0

0
n/a
4

0

0

There were no significant transfers between Level 1 and Level 2 during 2021 or 2020.

89

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the year ended December 31:

Investment Securities Available-for-sale (Level 3)
2020

2019

2021

Beginning Balance ....................................................................................................... $
Repayments, calls and maturities ..........................................................................
Acquired and/or purchased....................................................................................
Ending Balance............................................................................................................. $

4
(1)
0
3

$

$

5
(1)
0
4

$

$

6
(1)
0
5

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements
at December 31, 2021 Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Financial Assets

Individually Evaluated loans

Commercial............................................................................. $
1–4 family residential .............................................................

$

1,654
82

$

0
0

$

0
0

1,654
82

Fair Value Measurements
at December 31, 2020 Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Value

Financial Assets

Impaired loans

Commercial.................................................................................... $
1-4 family residential ..............................................................
Consumer.......................................................................................

$

1,770
82
36

$

0
0
0

$

0
0
0

1,770
82
36

Collateral dependent loans were individually evaluated under ASC 326 for the period ended December 31, 2021,
while impaired loans from the periods ended December 31, 2020 were individually evaluated under ASC 310.
Collateral dependent loans, had a principal balance of $3.2 million, with a valuation allowance of $1.5 million at
December 31, 2021. Impaired loans that were measured for impairment using the fair value of the collateral had a
principal balance of $2.3 million, with a valuation allowance of $368 thousand at December 31, 2020. Excluded
from the above tables at December 31, 2021 and 2020, discussed above are $792 thousand and $513 thousand of
loans classified as troubled debt restructurings and measured using the present value of cash flows, which is not
considered an exit price.

Collateral dependent commercial real estate loans, both owner occupied and non-owner occupied are valued by
independent external appraisals. These external appraisals are prepared using the sales comparison approach and
income approach valuation techniques. Management makes subsequent unobservable adjustments to the collateral
dependent loan appraisals. Collateral dependent loans other than commercial real estate and other real estate owned
are not considered material.

At December 31, 2021 and 2020, other real estate owned measured at fair value less costs to sell, had a zero net
carrying amount. During the year ended December 31, 2021, the Company had zero write-downs related to other

90

real estate owned. The Company had $19 thousand in write-downs related to other real estate owned during the year
ended December 31, 2020.

The following table presents quantitative information about
instruments measured at fair value on a non-recurring basis at year ended 2021 and 2020:

level 3 fair value measurements for financial

December 31, 2021
Individually evaluated loans

Fair value

Valuation
Technique(s)

Unobservable
Input(s)

Range
Weighted Average

Commercial ............................ $

1,654

Sales comparison

Residential ..............................

82

Sales comparison

Adjustment for
differences
between
comparable sales
Adjustment for
differences
between
comparable sales

(40.24%) - 56.83%
(12.43%)

(3.84%) - 3.22%
(0.12%)

December 31, 2020
Impaired loans

Fair value

Valuation
Technique(s)

Unobservable
Input(s)

Range
Weighted Average

Commercial ............................ $

1,770

Sales comparison

Residential ..............................

82

Sales comparison

Consumer................................

36

Sales comparison

Adjustment for
differences
between
comparable sales
Adjustment for
differences
between
comparable sales
Adjustment for
differences
between
comparable sales

(24.01%) - 17.93%
(0.48%)

(40.00%) - 47.15%
(17.77%)

(23.60%) - 23.60%
(0.00%)

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments not previously presented, at December 31,
2021 and December 31, 2020 are as follows:

Fair Value Measurements at December 31, 2021 Using:

Carrying
Amount

Level 1

Level 2

Level 3

Total

Financial assets

Cash and cash equivalents ................................... $ 112,790 $
15,510
Restricted stock....................................................
Loans held for sale...............................................
4,545
Loans, net............................................................. 2,301,696
12,460
Accrued interest receivable .................................

29,150 $ 83,640 $

n/a
0
0
0

n/a
4,681
0
6,844

0 $ 112,790
n/a
4,681
2,285,554
12,460

n/a
0
2,285,554
5,616

Financial liabilities

Deposits ............................................................... 3,547,235
87,758
Long-term borrowings.........................................
376
Accrued interest payable .....................................

3,158,967
0
22

384,263
92,433
354

0
0
0

3,543,230
92,433
376

91

Fair Value Measurements at December 31, 2020 Using:

Carrying
Amount

Level 1

Level 2

Level 3

Total

Financial assets

Cash and cash equivalents ................................... $ 254,621 $
14,647
Restricted stock....................................................
Loans held for sale...............................................
4,766
Loans, net............................................................. 2,055,900
9,880
Accrued interest receivable .................................

20,503 $ 234,118 $

n/a
0
0
0

n/a
4,909
0
3,297

0 $ 254,621
n/a
4,909
2,036,872
9,880

n/a
0
2,036,872
6,583

Financial liabilities

Deposits ............................................................... 2,610,878
2,521
Short-term borrowings.........................................
76,385
Long-term borrowings.........................................
690
Accrued interest payable .....................................

2,126,942
0
0
36

487,105
2,521
77,189
654

0
0
0
0

2,614,047
2,521
77,189
690

The methods and assumptions used to estimate fair value, not previously described, are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and
are classified as either Level 1 or Level 2. The Company has determined that cash on hand and non-interest bearing
due from bank accounts are Level 1 whereas interest bearing federal funds sold and other are Level 2.

Restricted Stock: It is not practical to determine the fair value of restricted stock due to restrictions placed on its
transferability.

Loans: Fair values of loans, excluding loans held for sale, are estimated using a third party firm that uses cash flow
analysis and current market interest rates along with adjustments for credit, liquidity and option risk to conform to
the ASU 2016-01 exit price requirement. Impaired loans are valued at the lower of cost or fair value as described
previously.

Loans held for sale: The fair value of loans held for sale is estimated based upon the average of binding contracts
and quotes from third party investors resulting in a Level 2 classification.

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest receivable and payable approximate
fair value resulting in a Level l, Level 2 or Level 3 classification. The classification is the result of the association
with securities, loans, deposits and borrowings.

Deposits: The fair values disclosed for demand deposits – interest and non-interest checking, passbook savings and
money market accounts—are, by definition, equal to the amount payable on demand at the reporting date resulting
in a Level 1 classification. The carrying amounts of variable rate certificates of deposit approximate their fair values
at the reporting date resulting Level 2 classification. Fair value for fixed rate certificates of deposit are estimated
using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements,
and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a
Level 2 classification.

Long-term Borrowings: The fair values of the Company’s long-term borrowings are estimated using discounted cash
flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level
2 classification.

Off-balance Sheet Instruments: The fair value of commitments is not considered material.

92

NOTE 8 – PREMISES AND EQUIPMENT

Year-end premises and equipment owned and utilized in the operations of the Company were as follows:

Land .................................................................................................................... $
Buildings.............................................................................................................
Furniture, fixtures and equipment.......................................................................
Leasehold Improvements....................................................................................
Right of use assets ..............................................................................................

Less accumulated depreciation ...........................................................................
Net book value.................................................................................................... $

2021
6,807
30,950
17,309
1,013
6,360
62,439
(24,919)
37,520

$

$

2020
4,594
24,717
11,646
541
4,829
46,327
(20,707)
25,620

Depreciation expense was $1.8 million for year ended December 31, 2021, and $1.5 million for the years ended
December 31, 2020 and 2019, respectively.

Year-end premises and equipment subject to lease agreements in which the Company acts as lessor were as follows.
See NOTE - 9 for additional lease disclosures:

Buildings............................................................................................................. $
Equipment...........................................................................................................

Less: accumulated amortization .........................................................................
Total.................................................................................................................... $

2021

2020

7,567
794
8,361
(2,001)
6,360

$

$

5,215
794
6,009
(1,180)
4,829

NOTE 9 – LEASES

The Company has operating leases for branch office locations, vehicles and certain office equipment such as
printers, copiers and faxes. The leases have remaining lease terms of up to 18.3 years, some of which include
options to extend the lease for up to 15 years and some of which include options to terminate the lease in April of
2022.

The right of use asset and lease liability were $6.4 million and $6.6 million as of December 31, 2021, respectively,
and $4.8 million and $5.0 million as of December 31, 2020, respectively.

Lease payments made for the year ended December 31, 2021 and 2020 were $845 thousand and $782 thousand.
Interest expense and amortization expense on finance leases for the year ended December 31, 2021 were $154
thousand and $521 thousand.
Interest expense and amortization expense on finance leases for the year ended
December 31, 2020 were $133 thousand and $456 thousand. The weighted-average remaining lease term for all
leases was 6.2 years as of December 31, 2021 and the weighted-average discount rate was 2.2%.

On November 1, 2021, the Company performed a valuation on Cortland’s leases to determine an initial right of use
asset (ROU asset) and lease liability in connection with the Merger. The Company recorded and initial ROU asset
and lease liability of $1.6 million for these leases.

93

Maturities of lease liabilities are as follows as of December 31, 2021:

2022.............................................................................................................................................. $
2023..............................................................................................................................................
2024..............................................................................................................................................
2025..............................................................................................................................................
2026..............................................................................................................................................
Thereafter.....................................................................................................................................
Total Payments..........................................................................................................................
Less: Imputed Interest ...............................................................................................................

Total........................................................................................................................................ $

833
780
610
603
586
4,245
7,657
(1,075)
6,582

NOTE 10 – GOODWILL AND INTANGIBLE ASSETS

Goodwill associated with the Company’s purchases of Cortland in November 2021 and other past acquisitions
Impairment exists when a
totaled $94.2 million at December 31, 2021 and $45.8 million at December 31, 2020.
reporting unit’s carrying value of goodwill exceeds its fair value, which is determined through a two-step
impairment test. Management performs goodwill impairment testing on an annual basis as of September 30. The
fair value of the reporting units is determined using a combination of a discounted cash flow method and a guideline
public company method. Results of the assessment indicated no goodwill impairment as of December 31, 2021.
The Company will continue to monitor its goodwill for possible impairment.

Acquired Intangible Assets

Acquired intangible assets were as follows:

2021

2020

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Other intangible:

Customer relationship intangibles .................................. $
Non-compete contracts...................................................
Trade Name ....................................................................
Core deposit intangible...................................................
Total ..................................................................................... $

7,210
430
520
12,866
21,026

$

$

(6,641) $
(392)
(356)
(5,271)
(12,660) $

7,210
430
520
6,979
15,139

$

$

(6,318)
(388)
(320)
(4,271)
(11,297)

Aggregate intangible amortization expense was $1.4 million for 2021 and $1.3 million for 2020 and 2019.

Estimated amortization expense for each of the next five years and thereafter:

2022.............................................................................................................................................. $
2023..............................................................................................................................................
2024..............................................................................................................................................
2025..............................................................................................................................................
2026..............................................................................................................................................
Thereafter.....................................................................................................................................

Total........................................................................................................................................ $

1,670
1,198
894
833
741
3,030
8,366

94

NOTE 11 - DEPOSITS

Following is a summary of year-end deposits:

Noninterest-bearing demand .....................................................................
Interest-bearing demand ............................................................................
Money market............................................................................................
Savings ......................................................................................................
Brokered time deposits ..............................................................................
Certificates of deposit................................................................................

$

Total ..................................................................................................... $

2021
916,237
1,407,967
370,918
463,845
0
388,268
3,547,235

$

$

2020
608,791
1,030,426
217,025
270,700
32,000
451,936
2,610,878

Time deposits of $250 thousand or more were $133.8 million and $136.9 million at year-end 2021 and 2020.

Following is a summary of scheduled maturities of certificates of deposit during the years following December 31,
2021:

2022 ...........................................................................................................
2023 ...........................................................................................................
2024 ...........................................................................................................
2025 ...........................................................................................................
2026 ...........................................................................................................
Thereafter ..................................................................................................
Total .....................................................................................................

$

$

163,085
66,550
47,872
65,652
39,259
5,850
388,268

NOTE 12 – SHORT-TERM BORROWINGS

The Bank had no short-term advances from the FHLB at December 31, 2021 or 2020.

Securities sold under repurchase agreements are secured by the Bank’s holdings of debt securities issued by U.S.
government sponsored entities and agencies. These pledged securities which are 105% of the repurchase agreement
balances, had a carrying amount of zero and $2.3 million for the year ended December 31, 2021 and 2020,
respectively.

95

Repurchase agreements are financing arrangements that mature within 89 days and usually overnight. Under the
agreements, customers agree to maintain funds on deposit with the Bank and in return acquire an interest in a pool of
securities pledged as collateral against the funds. The securities are held in segregated safekeeping accounts at the
Federal Reserve Bank, Farmers Trust and the FHLB.
Information concerning securities sold under agreements to
repurchase is summarized as follows:

Average balance during the year ...................................................... $
Average interest rate during the year ...............................................
Maximum month-end balance during the year ................................ $
Weighted average year-end interest rate ..........................................
Balance at year-end .......................................................................... $

2021
2,354
0.18%
4,860
0.00%
0

$

$

$

2020
3,425
0.66%
5,150
0.66%

2,171

$

$

$

2019
3,343
1.36%
5,505
1.36%
1,700

The following table provides a disaggregation of the obligation by class of collateral pledged for short-term
financing obtained through the sales of repurchase agreements:

Overnight and continuous repurchase agreements

U.S. Treasury and U.S. government sponsored entities ......................................................... $
State and political subdivisions ..............................................................................................
Mortgage-backed securities - residential................................................................................
Collateralized mortgage obligations.......................................................................................
Total borrowings.......................................................................................................................... $

2020

42
1,407
568
154
2,171

Management believes the risks associated with the agreements are minimal and in the case of collateral decline the
Company has additional investment securities available to adequately pledge as guarantees for the repurchase
agreements.

The Bank has access to lines of credit amounting to $35 million at two major domestic banks that are below prime
rate. The lines and terms are periodically reviewed by the lending banks and are generally subject to withdrawal at
their discretion. There were no borrowings under these lines at December 31, 2021 and 2020.

Farmers has two unsecured revolving lines of credit for $6.5 million. The lines can be renewed annually. The lines
have interest rates of prime with floors of 3.5% and 4.5%. The outstanding balance on the two lines was zero and
$350 thousand at December 31, 2021 and 2020, respectively. The interest rate on the outstanding balance at
December 31, 2020 was 4.60%.

NOTE 13 – LONG-TERM BORROWINGS

At December 31, 2021, there were no long-term advances from the FHLB. At December 31, 2020, the balances
were as follows:

Fixed-rate constant payment advance................................................................. $
Convertible and putable fixed-rate advance .......................................................
Total advances .................................................................................................... $

2020

Amount

1,980
65,000
66,980

Weighted
Average
Rate

1.70%
1.38%
1.39%

Long-term and short-term FHLB advances are secured by a blanket pledge of residential mortgage, commercial real
estate, and multi-family loans totaling $1.2 billion and $616.4 million at year-end 2021 and 2020. Based on this

96

collateral, the Bank is eligible to borrow an additional $541.0 million at December 31, 2021. During 2021, the
Company prepaid $65.0 million in putable fixed-rate FHLB advances, which had a weighted average interest rate of
1.38% and incurred prepayment penalties of $2.1 million.

In November 2021, the Company completed the issuance of $75.0 million aggregate principal amount, fixed-to-
floating rate subordinated notes due December 15, 2031, in a private offering exempt from the registration
requirements under the Securities Act of 1933, as amended. The notes carry a fixed rate of 3.125% for five years at
which time they will convert to a floating rate based on the three-month term secured overnight funding rate, plus a
spread of 220 basis points. The Company may, at its option, beginning December 15, 2026, redeem the notes, in
whole or in part, from time to time, subject
to certain conditions. The net proceeds from the sale were
approximately $73.8 million, after deducting the offering expenses. The Company’s intent was to use the proceeds
from the sale for general corporate purposes, which may include, without limitation, providing capital to support its
growth organically or through acquisitions, in financing investments, capital expenditures, repurchasing its common
shares and for investments in the Bank as regulatory capital. The subordinated debentures are included in Total
Capital under current regulatory guidelines and interpretations.

On November 1, 2021, the Company completed its acquisition of Cortland, which included the assumption of
Floating Rate Junior Subordinated Debt Securities due in September 15, 2037 (the "junior subordinated debt
securities") at an acquisition-date fair value of $4.3 million, held in a wholly-owned statutory trust whose common
securities were wholly-owned by Cortland. The sole assets of the statutory trust are the junior subordinated debt
securities and related payments. The junior subordinated debt securities and the back-up obligations, in the
aggregate, constitute a full and unconditional guarantee of the obligations of the statutory trust under the capital
securities held by third-party investors. The securities bear interest at a rate of 1.45% over the 3-month LIBOR rate.
The rate at December 31, 2021, was 1.65%.

On January 7, 2020, the Company completed its acquisition of Maple Leaf, which included the assumption of
Floating Rate Junior Subordinated Debt Securities due December 15, 2036 (the "junior subordinated debt securities")
held in a wholly-owned statutory trust whose common securities were wholly-owned by Maple Leaf. The sole assets
of the statutory trust are the junior subordinated debt securities and related payments. The junior subordinated debt
securities and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee of the
obligations of the statutory trust under the capital securities held by third-party investors. The securities bear interest
at a rate of 1.70% over the 3-month LIBOR rate. The rate at December 31, 2021 and 2020, was 1.90% and 1.92%,
respectively.

In 2015, the Company completed its acquisition of National Bancshares Corporation (“NBOH”), which included the
assumption of Floating Rate Junior Subordinated Debt Securities due June 15, 2035 (the "junior subordinated debt
securities") held in a wholly-owned statutory trust whose common securities were wholly-owned by NBOH. The
sole assets of the statutory trust are the junior subordinated debt securities and related payments. The junior
subordinated debt securities and the back-up obligations, in the aggregate, constitute a full and unconditional
guarantee of the obligations of the statutory trust under the capital securities held by third-party investors. The
securities bear interest at a rate of 1.80% over the 3-month LIBOR rate. The rate at December 31, 2021 and 2020,
was 2.00% and 2.02%, respectively.

In all three instances, the Company may redeem the junior subordinated debentures at any quarter-end, in whole, or
in part, at par. This type of subordinated debenture qualifies as Tier 1 capital for regulatory purposes in determining
and evaluating the Company’s capital adequacy.

97

A summary of all junior subordinated debentures issued by the Company to affiliates and subordinated debentures
follows. For the junior subordinated debentures, these amounts represent the par value of the obligations owed to
these affiliates, including the Company’s equity interest in the trusts along with any unamortized fair value marks.
For the subordinated debentures, these amounts represent the par value less the remaining deferred offering expense
associated with the issuance of the debentures. Balances were as follows at December 31, 2021 and 2020:

2021
Amount

2020
Amount

TSEO Statutory Trust I....................................................................................... $
Maple Leaf Financial Statutory Trust II .............................................................
Cortland Statutory Trust I...................................................................................
Total junior subordinated debentures owed to unconsolidated subsidiary
trusts.................................................................................................................... $

2,424
7,293
4,271

13,988

Subordinated debentures..................................................................................... $

73,770

$

$

$

2,375
7,030
0

9,405

0

NOTE 14 – COMMITMENTS AND CONTINGENT LIABILITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are
issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire
without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make such commitments as are used for
loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance-sheet risk at year-end were as follows:

Commitments and unused lines of credit ..... $

119,003

Fixed Rate

Variable Rate
482,025
$

Fixed Rate

$

80,567

Variable Rate
344,970
$

2021

2020

Commitments to make loans are generally made for periods of 30 days or less. Commitments and fixed rate unused
lines of credit have interest rates ranging from 2.25% to 21.90% at December 31, 2021 and 2020.

Standby letters of credit are considered financial guarantees. The standby letters of credit have a contractual value
of $5.8 million at December 31, 2021 and $5.0 million at December 31, 2020. The carrying amount of these items
on the balance sheet is not material.

Additionally, the Company has committed up to a $17.2 million subscription in SBIC investment funds. At
December 31, 2021, the Company had invested $10 million in these funds.

NOTE 15 – STOCK BASED COMPENSATION

During 2017, the Company, with the approval of shareholders, created the 2017 Equity Incentive Plan (the “2017
Plan”). The 2017 Plan permits the award of up to 800 thousand shares to the Company’s directors and employees to
attract and retain exceptional personnel, motivate performance and most importantly to help align the interests of
Farmers’ executives with those of the Company’s shareholders. There were 68,195 service time based shares and
58,245 performance based shares granted under the 2017 Plan during the year ended December 31, 2021, as shown
in the table below. The actual number of performance based shares issued will depend on the relative performance
of the Company’s average return on equity compared to a group of peer companies over a three year vesting period,
ending December 31, 2024. As of December 31, 2021, 269,875 shares are still available to be awarded from the
2017 Plan.

98

The restricted stock awards were granted with a fair value price equal to the market price of the Company’s common
stock at the date of grant. Expense recognized was $1.2 million for 2021, and $1.4 million for both 2020 and 2019.
As of December 31, 2021, there was $1.9 million of total unrecognized compensation expense related to the non-
vested shares granted under the Plan. The remaining cost is expected to be recognized over 2.9 years.

The following is the activity under the Plan during 2021:

Maximum
Awarded
Service Units

Weighted
Average
Grant Date
Fair Value

Maximum
Awarded
Performance
Units

Weighted
Average
Grant Date
Fair Value

Beginning balance - non-vested shares........................................
Granted.........................................................................................
Vested ..........................................................................................
Forfeited.......................................................................................
Ending balance - non-vested shares.............................................

67,765
68,195
(31,180)
(5,216)
99,564

$

$

14.32
16.99
14.96
14.29
16.13

153,070
58,245
(52,327)
0
158,988

$

$

14.46
14.21
14.34
0.00
14.40

The following is the activity under the Plan during 2020:

Maximum
Awarded
Service Units

Weighted
Average
Grant Date
Fair Value

Maximum
Awarded
Performance
Units

Weighted
Average
Grant Date
Fair Value

Beginning balance - non-vested shares ................................
Granted .................................................................................
Vested...................................................................................
Forfeited ...............................................................................
Ending balance - non-vested shares .....................................

81,165
29,045
(35,006)
(7,439)
67,765

$

$

14.17
15.01
14.50
14.61
14.32

192,665
50,187
(80,026)
(9,756)
153,070

$

$

13.72
15.93
13.55
14.97
14.46

The 83,507 shares that vested in 2021 had a weighted average fair value of $14.57 per share.

NOTE 16 – REGULATORY MATTERS

Banks and bank holding companies are subject to various regulatory capital requirements administered by the
federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by
regulators. Failure to meet capital requirements can initiate regulatory action by regulators that, if undertaken, could
have a direct material effect on the financial statements. Management believes that as of December 31, 2021, the
Company and the Bank meet all capital adequacy requirements to which they are subject.

The FDIC and other federal banking regulators revised the risk-based capital requirements applicable to financial
holding companies and insured depository institutions, including the Company and the Bank, to make them
consistent with agreements that were reached by the Basel Committee on Banking Supervision (“Basel III”).

The common equity tier 1 capital, tier 1 capital and total capital ratios are calculated by dividing the respective
capital amounts by risk-weighted assets. The leverage ratio is calculated by dividing tier 1 capital by adjusted
average total assets.

Basel III limits capital distributions and certain discretionary bonus payments if the banking organization does not
hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital, tier 1 capital and total
capital
to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital
requirements. The capital conservation buffer is 2.5% for the years of 2021 and 2020. The buffer requires an
additional capital amount of $68.9 million at year-end 2021 and an additional $52.9 million at year-end 2020.
Excluding the additional buffer, Basel III requires the Company and the Bank to maintain (i) a minimum ratio of
common equity tier 1 capital to risk-weighted assets of at least 4.5%, (ii) a minimum ratio of tier 1 capital to risk-

99

weighted assets of at least 6.0%, (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0% and
(iv) a minimum leverage ratio of at least 4.0%.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to
represent overall financial condition.
If only adequately capitalized, regulatory approval is required to accept
brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital
restoration plans are required. At year-end 2021 and 2020, the most recent regulatory notifications categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the institution’s category.

Dividend Restrictions: The Company’s principal source of funds for dividend payments is dividends received from
the Bank, Farmers Trust and to a lesser extent the Captive. The Bank and Farmers Trust are subject to the dividend
restrictions set forth by the Comptroller of the Currency and Ohio Department of Commerce – Division of Financial
Institutions, respectively. The respective regulatory agency must approve declaration of any dividends in excess of
the sum of profits for the current year and retained net profits for the preceding two years. At the conclusion of
2021, the Bank could, without prior approval, declare dividends of approximately $17.2 million plus any 2022 net
In order to practice trust powers, Farmers Trust must
profits retained to the date of the dividend declaration.
maintain a minimum capital of $3 million. Farmers Trust would also be able to, without prior approval, declare
dividends of $648 thousand plus any 2022 net profits retained to the date of the dividend declaration.

100

Actual and required capital amounts (not including the capital conservation buffer) and ratios are presented below at
year-end:

Actual

Amount

Ratio

Requirement For Capital
Adequacy Purposes:
Ratio
Amount

To be Well Capitalized
Under Prompt Corrective
Action Provisions:
Ratio

Amount

2021
Common equity tier 1 capital ratio

Consolidated ......................................... $ 362,950
345,065
Bank......................................................

13.16% $ 124,066
12.55% 123,712

4.5% N/A
4.5% 178,695

N/A

6.5%

Total risk based capital ratio

Consolidated .........................................
Bank......................................................

485,336
374,451

17.60% 220,562
13.62% 219,933

8.0% N/A
8.0% 274,916

N/A

10.0%

Tier I risk based capital ratio

Consolidated .........................................
Bank......................................................

380,950
345,065

13.82% 165,422
12.55% 164,950

6.0% N/A
6.0% 219,933

N/A

8.0%

Tier I leverage ratio

Consolidated .........................................
Bank......................................................

380,950
345,065

10.12% 150,629
9.19% 150,217

4.0% N/A
4.0% 187,772

N/A

5.0%

2020
Common equity tier 1 capital ratio

Consolidated ......................................... $ 279,864
268,041
Bank......................................................

13.22% $ 95,211
94,903
12.71%

4.5% N/A
4.5% 137,083

N/A

6.5%

Total risk based capital ratio

Consolidated .........................................
Bank......................................................

311,413
290,185

14.72% 169,264
13.76% 168,717

8.0% N/A
8.0% 210,897

N/A

10.0%

Tier I risk based capital ratio

Consolidated .........................................
Bank......................................................
Tier I leverage ratio....................................
Consolidated .........................................
Bank......................................................

289,269
268,041

13.67% 126,948
12.71% 126,538

6.0% N/A
6.0% 168,717

N/A

8.0%

289,269
268,041

9.77% 118,464
9.10% 117,877

4.0% N/A
4.0% 147,346

N/A

5.0%

NOTE 17 – EMPLOYEE BENEFIT PLANS

The Company has a qualified 401(k) deferred compensation Retirement Savings Plan (the “Savings Plan”). All
employees of the Company who have completed at least 90 days of service and meet certain other eligibility
requirements are eligible to participate in the Savings Plan. Under the terms of the Savings Plan, employees may
voluntarily defer a portion of their annual compensation pursuant to section 401(k) of the Internal Revenue Code.
The Company matches 50% of the participants’ voluntary contributions up to 6% of gross wages. In addition, at the
discretion of the Board of Directors, the Company may make an additional profit sharing contribution to the Savings
Plan. Total expense was $814 thousand, $665 thousand and $708 thousand for the years ended December 31, 2021,
2020 and 2019, respectively.

101

The Company has a profit sharing plan to provide associates not participating in a current incentive plan a vehicle
for sharing in the success of the Company outside of existing wages and non-monetary benefits. The Board of
Directors approved a profit sharing amount equal to 2% of annual compensation for associates in 2021 and 2020,
and 1% for 2019. The expense was $268 thousand for the year ended December 31, 2021, $195 thousand for the
year ended December 31 2020, and $95 thousand for the year ended December 31, 2019.

The Company maintains a deferred compensation plan for certain retirees. Expense under this plan was $6 thousand
for year ended December 31, 2021 and $7 thousand for the years ended December 31, 2020 and 2019. The liability
under the deferred compensation plan at December 31, 2021 was $94 thousand and $105 thousand at December 31,
2020.

During 2015, the Company established a nonqualified deferred compensation plan for a select group of management
or highly compensated eligible individuals. Under the terms of the plan, eligible individuals may elect to defer
receipt of their compensation to a later taxable year. The Company has recorded both an asset and liability of equal
amount that represents the amount of contributions and the payable due to the participants in the plan. The recorded
asset and liability was $2.5 million and $1.9 million at December 31, 2021 and 2020, respectively.

As part of the NBOH acquisition the Company has a director retirement and death benefit plan for the benefit of
prior members of the Board of Directors of NBOH. The plan is designed to provide an annual retirement benefit to
be paid to each director upon retirement from the Board and attaining age 70. There are no additional benefits or
participants being added to the plan and the liability recorded at December 31, 2021 and 2020 was $975 thousand
and $1.1 million, respectively. The benefit payment upon satisfying the plan’s requirements is a benefit to the
qualifying director until death or a maximum of 15 years. A benefit was recognized under this plan of $11 thousand
in 2021 and an expense under the plan of $180 thousand and $136 thousand was recorded in 2020 and 2019,
respectively.

As part of the Cortland acquisition, the Company has supplemental retirement benefit plans for the benefit of certain
officers and non-officer directors. The plan for officers is designed to provide post-retirement benefits to
supplement other sources of retirement income such as social security and 401(k) benefits. The benefits will be paid
for a period of 15 years after retirement. Director Retirement Agreements provide for a benefit of $10,000 annually
on or after the director reaches normal retirement age, which is based on a combination of age and years of service.
Director retirement benefits are paid over a period of 10 years following retirement. The Company accrued the cost
of these post-retirement benefits during the working careers of the officers and directors. At December 31, 2021, the
accumulated liability for these benefits totaled $1.7 million, with $1.6 million accrued for the officers’ plan and
$138,000 for the directors’ plan. Expense recognized for these plans in 2021 was $11,000. Benefits expected to be
paid in 2022 are $748,000.

To fund the above obligations, the Company has insurance contracts on the lives of the participants and directors in
the supplemental retirement benefit plans with the Company as the beneficiary. In the case of directors and a small
group of employee participants, postretirement split dollar life insurance coverage was accrued for during the
service years. The liability at December 31, 2021 is $645,000 and the benefit recorded in 2021 was $31,000.

NOTE 18 – INCOME TAXES

The provision for income taxes (credit) consists of the following:

Current expense................................................................................. $
Deferred expense (benefit)................................................................

Totals .............................................................................................. $

2021
10,794
(524)
10,270

$

$

2020
9,922
(1,526)
8,396

$

$

2019
7,626
(311)
7,315

102

Effective tax rates differ from federal statutory rate of 21% that were applied to income before income taxes due to
the following:

Statutory tax................................................................................. $
Effect of nontaxable interest........................................................
Bank owned life insurance, net....................................................
Tax credits ...................................................................................
Effect of nontaxable insurance premiums ...................................
Stock compensation.....................................................................
Other ............................................................................................

Actual tax .................................................................................. $

2021
13,026
(2,274)
(273)
(200)
(322)
(9)
322
10,270

$

$

2020
10,557
(1,896)
(167)
23
(198)
12
65
8,396

$

$

Deferred tax assets (liabilities) are comprised of the following:

Deferred tax assets:

Allowance for credit losses...........................................................................
Deferred and accrued compensation.............................................................
Deferred loan fees and costs .........................................................................
Nonaccrual loan interest income...................................................................
Other-than-temporary impairment................................................................
Restricted stock.............................................................................................
Lease liabilities .............................................................................................
Other .............................................................................................................
Gross deferred tax assets............................................................................

Deferred tax liabilities:

Depreciation and amortization......................................................................
Net unrealized gain on securities available for sale......................................
Federal Home Loan Bank dividends ............................................................
Purchase accounting adjustments .................................................................
Mortgage servicing rights .............................................................................
Prepaid expenses...........................................................................................
Lease right of use asset .................................................................................
Other .............................................................................................................
Gross deferred tax liabilities ......................................................................
Net deferred tax asset (liability)....................................................................

$

$

$

$

2021

6,171
1,993
531
571
0
423
1,382
158
11,229

$

$

(1,391) $
(2,461)
(976)
(1,729)
(715)
(367)
(1,336)
0
(8,975)
2,254

$

2019
9,046
(1,655)
(171)
3
(204)
(100)
396
7,315

2020

4,650
1,413
507
563
24
521
1,043
0
8,721

(748)
(5,857)
(684)
(1,313)
(672)
(274)
(1,014)
(107)
(10,669)
(1,948)

No valuation allowance for deferred tax assets was recorded at December 31, 2021 and 2020.

At December 31, 2021 and December 31, 2020, the Company had no unrecognized tax benefits recorded. The
Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve
months.

The Company is subject to U.S. federal income tax. The Company is no longer subject to examination by the federal
taxing authority for years prior to 2018. The tax years 2018—2020 remain open to examination by the U.S. taxing
authority.

103

NOTE 19 – OTHER COMPREHENSIVE INCOME (LOSS)

The following table represents the detail of other comprehensive income (loss) for the years ended December 31,
2021, 2020 and 2019.

Unrealized holding gains (losses) on available-for-sale securities during the year ..... $
Reclassification adjustment for gains included in net income (1)................................
Net unrealized gains (losses) on available-for-sale securities......................................
Change in funded status of post-retirement plan..........................................................
Net other comprehensive income (loss) ....................................................................... $

Unrealized holding gains (losses) on available-for-sale securities during the year ..... $
Reclassification adjustment for gains included in net income (1)................................
Net other comprehensive income (loss) ....................................................................... $

Unrealized holding gains (losses) on available-for-sale securities during the year ..... $
Reclassification adjustment for gains included in net income (1)................................
Net other comprehensive income (loss) ....................................................................... $

Pre-tax

(15,333)
(838)
(16,171)
48
(16,123)

Pre-tax

16,651
(385)
16,266

Pre-tax

17,513
11
17,524

$

$

$

$

$

$

2021
Tax

After-Tax

3,220
176
3,396
(10)
3,386

2020
Tax

(3,970)
(90)
(4,060)

2019
Tax

(3,666)
(2)
(3,668)

$

$

$

$

$

$

(12,113)
(662)
(12,775)
38
(12,737)

After-Tax

12,681
(475)
12,206

After-Tax

13,847
9
13,856

(1)

Pre-tax reclassification adjustments relating to available-for-sale securities are reported in security gains and
the tax impact is included in income tax expense on the consolidated statements of income.

NOTE 20 – RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates during 2021 and 2020 were as follows:

Beginning balance............................................................................................... $
New loans............................................................................................................
Effect of changes in composition of related parties ............................................
Repayments .........................................................................................................
Ending balance .................................................................................................... $

2021

2020

12,003
950
3,713
(5,592)
11,074

$

$

13,147
1,917
0
(3,061)
12,003

Deposits from principal officers, directors, and their affiliates at year-end 2021 and 2020 were $ 32.2 million and
$26.8 million.

104

NOTE 21 – EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

Basic EPS

Net income ............................................................................ $
Weighted average shares outstanding ...................................

Basic earnings per share ............................................... $

Diluted EPS

Net income ............................................................................ $
Weighted average shares for basic earnings per share..........
Average unvested restricted stock awards ............................
Weighted average shares for diluted earnings per share .......

Diluted earnings per share ............................................ $

2021

2020

2019

51,844
29,167,357
1.78

51,844
29,167,357
112,430
29,279,787
1.77

$

$

$

$

41,876
28,266,509
1.48

41,876
28,266,509
127,487
28,393,996
1.47

$

$

$

$

35,760
27,734,994
1.29

35,760
27,734,994
140,990
27,875,984
1.28

There were 55,128, 67,074 and 21,000 restricted stock awards that were considered anti-dilutive at year-end 2021,
2020 and 2019, respectively.

NOTE 22 – DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Swaps

The Company maintains an interest rate protection program for commercial loan customers. Under this program, the
Company provides a variable rate loan while creating a fixed rate loan for the customer by the customer entering
into an interest rate swap with terms that match the loan. The Company offsets its risk exposure by entering into an
offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with
commercial loans with a notional value of $86.1 million and fair value of $4.0 million in other assets and $4.0
million in other liabilities at December 31, 2021. At December 31, 2020 the Company had interest rate swaps
associated with commercial loans with and a notional value of $41.2 million and fair value of $1.9 million in other
assets and $1.9 million in other liabilities. The interest rate swaps with both the customers and third parties are not
designated as hedges under FASB ASC 815 and are not marked to market through earnings. As the interest rate
swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the
valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments
related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC
820.

There were no net gains or losses for interest rate swaps for the years ended December 31, 2021 and 2020.

Mortgage Banking Derivatives

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market are
considered derivatives. These mortgage banking derivatives are not designated in hedge relationships. The
Company had approximately $25.7 million of interest rate lock commitments at December 31, 2021.

The net gains and losses on derivative instruments not designated as hedging instruments are included in mortgage
banking income. For fiscal year 2021, gains of $423,000 were included in mortgage banking income for the interest
rate lock commitments.

105

The table below provides data about the amount of gains and losses recognized in income on derivative instruments
not designated as hedging instruments.

Derivatives not designated as hedging
instruments

Mortgage Banking Derivatives - Gain.................. $

423

$

0

$

0

2021

2020

2019

NOTE 23 – SEGMENT INFORMATION

The reportable segments are determined by the products and services offered, primarily distinguished between
banking and trust operations. The trust and retirement consulting segments were combined during 2019. The
segments are also distinguished by the level of information provided to the chief operating decision makers in the
Company, who use such information to review performance of various components of the business, which are then
aggregated. Loans, investments and deposits provide the revenues in the banking operation, trust service fees and
consulting fees provide the revenue in trust operations. All operations are domestic.

Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated
using operating income. Income taxes are calculated on operating income. Transactions among segments are made
at fair value.

Significant segment totals are reconciled to the financial statements as follows:

December 31, 2021
Goodwill and other intangibles ......................... $
Total assets ........................................................ $

December 31, 2020
Goodwill and other intangibles ......................... $
Total assets ........................................................ $

For year ended 2021
Net interest income............................................ $
Provision for credit losses and unfunded loans .
Service fees, security gains and other

noninterest income..........................................
Noninterest expense...........................................
Amortization and depreciation expense ............
Income before taxes .....................................
Income tax .........................................................

Net Income................................................... $

Trust
Segment

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

5,814
14,365

$
$

101,055
4,124,530

$
$

(4,263) $
$
3,854

102,606
4,142,749

Trust
Segment

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

6,046
15,147

$
$

47,129
3,055,628

$
$

(3,558) $
$
373

49,617
3,071,148

Trust
Segment

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

$

134
0

108,726
4,893

$

(870) $
0

107,990
4,893

11,045
6,854
262
4,063
852
3,211

$

27,347
68,194
2,931
60,055
10,023
50,032

$

(199)
589
346
(2,004)
(605)
(1,399) $

38,193
75,637
3,539
62,114
10,270
51,844

106

For year ended 2020
Net interest income............................................ $
Provision for loan losses and unfunded loans ...
Service fees, security gains and other

noninterest income..........................................
Noninterest expense...........................................
Amortization and depreciation expense ............
Income before taxes .....................................
Income tax .........................................................

Net Income................................................... $

For year ended 2019
Net interest income............................................ $
Provision for loan losses and unfunded loans ...
Service fees, security gains and other

noninterest income..........................................
Noninterest expense...........................................
Amortization and depreciation expense ............
Income before taxes .....................................
Income tax .........................................................

Net Income................................................... $

9,353
5,963
304
3,211
674
2,537

Trust
Segment

156
0

9,097
6,015
365
2,873
604
2,269

$

$

$

Trust
Segment

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

$

125
0

96,361
9,100

$

(295) $
0

(381)
1,206
252
(2,134)
(583)
(1,551) $

96,191
9,100

36,161
69,858
3,122
50,272
8,396
41,876

27,189
62,689
2,566
49,195
8,305
40,890

$

Bank
Segment

Eliminations
and
Others

Consolidated
Totals

82,301
2,450

$

19,209
55,061
2,425
41,574
7,170
34,404

$

(79) $
0

(264)
980
49
(1,372)
(459)
(913) $

82,378
2,450

28,042
62,056
2,839
43,075
7,315
35,760

Bank segment includes Farmers Insurance and Investment.

NOTE 24 – QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarter Ended 2021
Total interest income........................................................... $
Total interest expense..........................................................
Net interest income .............................................................
Provision for credit losses ...................................................
Noninterest income .............................................................
Merger related costs ............................................................
Noninterest expense ............................................................
Income before income taxes ...............................................
Income taxes .......................................................................
Net income .......................................................................... $

December 31 September 30

June 30

31,685 $
1,986
29,699
5,366
9,538
6,521
21,140
6,210
508
5,702 $

28,375 $
1,841
26,534
(948)
9,015
472
16,656
19,369
3,358
16,011 $

28,609 $
2,119
26,490
50
9,508
104
16,966
18,878
3,303
15,575 $

March 31
27,790
2,523
25,267
425
10,132
12
17,305
17,657
3,101
14,556

Diluted earnings per share................................................... $

0.18 $

0.56 $

0.55 $

0.51

107

Quarter Ended 2020
Total interest income........................................................... $
Total interest expense..........................................................
Net interest income .............................................................
Provision for loan losses .....................................................
Noninterest income .............................................................
Merger related costs ............................................................
Noninterest expense ............................................................
Income before income taxes ...............................................
Income taxes .......................................................................
Net income .......................................................................... $

December 31 September 30

June 30

28,833 $
3,030
25,803
3,000
10,499
1,798
17,796
13,708
2,351
11,357 $

27,635 $
3,470
24,165
2,600
9,217
58
17,412
13,312
2,443
10,869 $

28,142 $
4,221
23,921
2,400
8,652
48
17,208
12,917
1,906
11,011 $

March 31
27,717
5,415
22,302
1,100
7,793
1,319
17,341
10,335
1,696
8,639

Diluted earnings per share................................................... $

0.40 $

0.38 $

0.39 $

0.30

NOTE 25 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Below is condensed financial information of Farmers National Banc Corp. (parent company only). This information
should be read in conjunction with the consolidated financial statements and related notes.

December 31,
BALANCE SHEETS

Assets:
Cash............................................................................................................... $
Investment in subsidiaries .............................................................................
Bank ......................................................................................................
Farmers Trust ........................................................................................
Captive ..................................................................................................
Equity securities ............................................................................................
Total assets.......................................................................................................... $

Liabilities:

Other liabilities ........................................................................................ $
Note payable ............................................................................................
Subordinate debt ......................................................................................
Total liabilities ....................................................................................................
Total stockholders' equity ...................................................................................
Total liabilities and stockholders' equity ............................................................ $

2021

2020

92,076

$

8,738

453,695
13,667
2,588
0
562,026

1,836
0
87,758
89,594
472,432
562,026

$

$

$

336,326
13,414
2,165
358
361,001

1,149
350
9,405
10,904
350,097
361,001

108

STATEMENTS OF INCOME
Years ended December 31,

Income:

Dividends from subsidiaries

2021

2020

2019

Bank.................................................................................. $
Farmers Trust....................................................................
Captive Insurance .............................................................
Interest and dividends on securities .......................................
Security gains/(losses)............................................................
Total Income .....................................................................................
Interest on borrowings............................................................
Other expenses ....................................................................

Income before income tax benefit and undistributed

subsidiary income................................................................
Income tax benefit ............................................................

Equity in undistributed net income of subsidiaries

(dividends in excess of net income)

Bank..................................................................................
Farmers Trust....................................................................
Captive..............................................................................

Net Income ........................................................................................ $

$

45,620
2,800
1,135
11
130
49,696
(918)
(2,792)

45,986
611

$

28,646
2,300
1,000
12
(28)
31,930
(361)
(2,746)

28,823
592

4,412
412
423
51,844

$

12,244
237
(20)
41,876

$

33,896
2,300
535
15
41
36,787
(154)
(2,352)

34,281
470

508
(31)
532
35,760

STATEMENTS OF CASH FLOWS
Years ended December 31,

Cash flows from operating activities:

2021

2020

2019

Net income ................................................................................ $

51,844

$

41,876

$

35,760

Adjustments to reconcile net income to net cash from

operating activities:

Dividends in excess of net income (Equity in

undistributed net income of subsidiary)..............................
Other .................................................................................
Net cash from operating activities ....................................................

(5,247)
6,846
53,443

(12,461)
1,167
30,582

(1,009)
(30)
34,721

Cash flows from investing activities:

Net cash paid in business combinations.................................
Net cash from investing activities .....................................................

(29,618)
(29,618)

(20,423)
(20,423)

0
0

Cash flows from financing activities:

Proceeds from long term borrowings.....................................
Repurchase of common shares...............................................
Cash dividends paid ...............................................................
Net cash from financing activities ....................................................
Net change in cash and cash equivalents ..........................................

73,749
(164)
(14,072)
59,513
83,338

0
(14,238)
(12,654)
(26,892)
(16,733)

0
(2,842)
(10,539)
(13,381)
21,340

Beginning cash and cash equivalents................................................
Ending cash and cash equivalents ..................................................... $

8,738
92,076

$

25,471
8,738

$

4,131
25,471

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

109

Item 9A. Controls and Procedures.

As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an
evaluation, under the supervision and with the participation of the Company’s management,
including the
Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective
to ensure that the financial and nonfinancial information required to be disclosed by the Company in the reports that
it files or submits under the Securities Exchange Act of 1934, as amended, including this Annual Report on Form
10-K for the period ended December 31, 2021, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s responsibilities related to establishing and maintaining effective disclosure controls and
procedures include maintaining effective internal controls over financial reporting that are designed to produce
reliable financial statements in accordance with GAAP. As disclosed in the Report on Management’s Assessment of
Internal Control Over Financial Reporting in the Company’s 2021 Annual Report to Shareholders, management
assessed the Company’s system of internal control over financial reporting as of December 31, 2021, in relation to
criteria for effective internal control over financial reporting as described in the 2013 “Internal Control - Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission and found it to be
effective.

CLA, the Company’s registered public accounting firm (U.S. PCAOB Auditor Firm I.D.: 655), has audited the
Company’s internal control over financial reporting as of December 31, 2021. The audit report by CLA is located in
Item 8 of this report.

The Company has excluded the operations of Cortland Bancorp and its subsidiaries as permitted by the
guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend
more than one year beyond the date of the acquisition or for more than on annual reporting period). The merger was
completed on November 1, 2021. As of and for the year ended December 31, 2021, legacy Cortland Bancorp’s
assets represented approximately 19 percent of the Company’s consolidated assets and its revenues represented
approximately 4 percent of the Company’s consolidated revenues.

Other than the above exclusions, there were no changes in the Company’s internal controls over financial
reporting (as defined in Rule 13a - 15(f) under the Exchange Act) that occurred during the year ended December 31,
2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

110

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by Item 401 of Regulation S-K concerning the directors of the Company and the
nominees for election as directors of the Company at the Annual Meeting of Shareholders to be held on April 21,
2022 (the “2021 Annual Meeting”) is incorporated herein by reference from the information to be included under the
caption “Proposal 1 – Election of Directors” in Farmers’ definitive proxy statement relating to the 2022 Annual
Meeting to be filed with the Commission (“2021 Proxy Statement”).

The information required by Item 401 of Regulation S-K concerning the executive officers of the Company is
incorporated herein by reference from the disclosure included under the caption “Information About Our Executive
Officers” at the end of “Item 1. Business” in Part I of this Annual Report on Form 10-K.

Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended.

The information required by Item 405 of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2022
Proxy Statement.

Code of Business Conduct and Ethics.

The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that covers all
employees, including its principal executive, financial and accounting officers, and is posted on the Company’s
website www.farmersbankgroup.com. In the event of any amendment to, or waiver from, a provision of the Code of
Ethics that applies to its principal executive, financial or accounting officers, the Company intends to disclose such
amendment or waiver on its website.

Procedures for Recommending Directors Nominees.

Information concerning the procedures by which shareholders may recommend nominees to Farmers’ Board
of Directors is incorporated herein by reference from the information to be included under the caption “Director
Nominations” in the 2022 Proxy Statement. These procedures have not materially changed from those described in
Farmers’ definitive proxy materials for the 2021 Annual Meeting of Shareholders.

Audit Committee.

The information required by Items 407(d)(4) and (d)(5) of Regulation S-K is incorporated herein by reference
from the disclosure to be included under the caption “Committees of the Board of Directors – Audit Committee” in
the 2022 Proxy Statement.

Item 11. Executive Compensation.

The information required by Item 402 of Regulation S-K is incorporated herein by reference from the
the captions “Compensation Discussion and Analysis” and “Executive

disclosure to be included under
Compensation and Other Information” in the 2022 Proxy Statement.

The information required by Item 407(e)(4) of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “Compensation Committee Interlocks and Insider Participation” in the
2022 Proxy Statement.

The information required by Item 407(e)(5) of Regulation S-K is incorporated herein by reference from the

disclosure to be included under the caption “The Compensation Committee Report” in the 2022 Proxy Statement.

111

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.

The information required by Item 201(d) of Regulation S-K is incorporated herein by reference from the
disclosure included under the caption “Equity Compensation Plan Information” in the 2022 Proxy Statement of the
Company.

The information required by Item 403 of Regulation S-K is incorporated herein by reference from the
disclosure included under the caption “Beneficial Ownership of Management and Certain Beneficial Owners” in the
2022 Proxy Statement of the Company.

Item 13. Certain Relationships and Related Transactions and Director Independence.

The information required by Item 404 of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “Certain Relationships and Related Transactions” in the 2022 Proxy
Statement.

The information required by Item 407(a) of Regulation S-K is incorporated herein by reference from the
disclosure to be included under the caption “The Board of Directors — Independence” in the 2022 Proxy Statement.

Item 14. Principal Accountant Fees and Services.

The information required by this Item 14 is incorporated herein by reference from the disclosure to be
included under the captions “Independent Registered Public Accounting Firm Fees” and “Pre-Approval of Fees” in
the 2022 Proxy Statement.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements

Item 8 Reference is made to the Consolidated Financial Statements included in Item 8 of Part II
herein.

(2) Financial Statement Schedules

No financial statement schedules are presented because they are not applicable.

(3) Exhibits

The exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K are
listed in the Exhibit Index, which follows and is incorporated herein by reference.

(b)Exhibits

The exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K are
listed in the Exhibit Index, which follows and is incorporated herein by reference.

(c)Financial Statement Schedules

See subparagraph (a)(2) above.

Item 16. Form 10-K Summary.

None.

112

The following exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K:

INDEX TO EXHIBITS

Exhibit
Number

2.1

2.2

3.1

3.2

3.3

3.4

4.1

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

Description

Agreement and Plan of Merger by and among Farmers National Banc Corp., Cortland Bancorp, and
FMNB Merger Subsidiary IV, LLC, dated as of June 22, 2021 (incorporated by reference from Exhibit
2.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 23, 2021).

Amendment to Agreement and Plan of Merger by and among Farmers National Banc Corp., Cortland
Bancorp, and FMNB Merger Subsidiary IV, LLC, dated as of October 12, 2021 (incorporated by
reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on
October 18, 2021).

Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from
Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed with the Commission on
October 3, 2001 (File No. 333-70806)).

Amendment to Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by
reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on
May 1, 2013).

Amendment to Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by
reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on
April 20, 2018).

Amended Code of Regulations of Farmers National Banc Corp. (incorporated by reference from Exhibit
3.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 17, 2020).

Form of 3.125% Fixed to Floating Rate Subordinated Note Due 2031 (incorporated by reference from
Exhibit 10.1 to Farmers’ Current Report on Form 8-K filed with the Commission on November 17,
2021).

Farmers National Banc Corp. Cash Incentive Plan (incorporated by reference from Exhibit 10.1 to
Farmers’ Current Report on Form 8-K filed with the Commission on June 24, 2011).

Farmers National Banc Corp. Long-Term Incentive Plan (incorporated by reference from Exhibit 10.1 to
Farmers’ Current Report on Form 8-K filed with the Commission on June 29, 2011).

Farmers National Banc Corp. Nonqualified Deferred Compensation Plan (as amended and restated
effective January 1, 2016) (incorporated by reference from Exhibit 10.4 to Farmers’ Annual Report on
Form 10-K for the year ended December 31, 2016 filed with the Commission on March 7, 2017).

Farmers National Banc Corp. 2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.1
to Farmers’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed with the
Commission on August 8, 2017).

Farmers National Banc Corp. 2019 Form of Notice of Grant of Long-term Incentive Plan Awards under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 8, 2019).

Farmers National Banc Corp. 2019 Form of Performance-Based Equity Award Agreement under 2017
Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on May 8, 2019).

Farmers National Banc Corp. 2019 Form of Service-Based Restricted Stock Award Agreement under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.3 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 8, 2019).

113

Exhibit
Number

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

10.16*

Description

Farmers National Banc Corp. 2019 Form of Performance-Based Cash Award Agreement under 2017
Equity Incentive Plan (incorporated by reference from Exhibit 10.4 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on May 8, 2019).

Farmers National Banc Corp. 2020 Form of Notice of Grant of Long-term Incentive Plan Awards under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 7, 2020).

Farmers National Banc Corp. 2020 Form of Performance-Based Equity Award Agreement under 2017
Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on May 7, 2020).

Farmers National Banc Corp. 2020 Form of Service-Based Restricted Stock Award Agreement under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.3 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 7, 2020).

Farmers National Banc Corp. 2020 Form of Performance-Based Cash Award Agreement under 2017
Equity Incentive Plan (incorporated by reference from Exhibit 10.4 to Farmers’ Quarterly Report on
Form 10-Q filed with the Commission on May 7, 2020).

Farmers National Banc Corp. 2021 Form of Notice of Grant of Long-term Incentive Plan Awards under
2017 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’ Quarterly Report
on Form 10-Q filed with the Commission on May 6, 2021).

Farmers National Banc Corp. 2021 Form of Performance-based Equity Award under 2017 Equity
Incentive Plan (incorporated by reference from Exhibit 10.2 to Farmers’ Quarterly Report on Form 10-Q
filed with the Commission on May 6, 2021).

Farmers National Banc Corp. 2021 Form of Service-based Restricted Stock Award under 2017 Equity
Incentive Plan (incorporated by reference from Exhibit 10.3 to Farmers’ Quarterly Report on Form 10-Q
filed with the Commission on May 6, 2021).

Farmers National Banc Corp. 2021 Form of Performance-based Cash Award under 2017 Equity
Incentive Plan (incorporated by reference from Exhibit 10.4 to Farmers’ Quarterly Report on Form 10-Q
filed with the Commission on May 6, 2021).

10.17*

Nonemployee Director Compensation (filed herewith).

10.18*

10.19*

10.20*

10.21*

10.22*

10.23*

10.24*

Farmers National Banc Corp. Form of Indemnification Agreement (incorporated by reference from
Exhibit 10.1 to Farmers’ Current Report on Form 8-K filed with the Commission on April 29, 2011).

Change in Control Agreement with Kevin J. Helmick (incorporated by reference from Exhibit 10.2 to
Farmers’ Current Report on Form 8-K filed with the Commission on November 14, 2013).

Restricted Stock Award Agreement with Troy Adair (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on June 21, 2021).

Change in Control Agreement with Troy Adair (incorporated by reference from Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed with the Commission on June 21, 2021).

Farmers National Banc Corp. Third Amended and Restated Executive Separation Policy (incorporated
by reference from Exhibit 10.1 to the Company’s Current Report on Form 8K filed with the Commission
on June 23, 2021).

Form of Senior Executive Change in Control Agreement (incorporated by reference from Exhibit 10.2 to
the Company’s Current Report on Form 8K filed with the Commission on June 23, 2021).

Form of Executive Change in Control Agreement (incorporated by reference from Exhibit 10.3 to the
Company’s Current Report on Form 8K filed with the Commission on June 23, 2021).

114

Exhibit
Number

10.25*

Form of Subordinated Note Purchase Agreement by and between Farmers National Banc Corp. and the
several Purchasers named therein, dated November 17, 2021 (incorporated by reference from Exhibit
10.1 to Farmers’ Current Report on Form 8-K filed with the Commission on November 17, 2021).

Description

21

Subsidiaries of Farmers (filed herewith).

23.1

24
31.1

31.2

32.1

32.2

101

104

Consent of Independent Registered Public Accounting Firm (filed herewith).

Powers of Attorney of Directors and Executive Officers (filed herewith).

Rule 13a-14(a)/15d-14(a) Certification of Kevin J. Helmick, President and Chief Executive Officer of
Farmers (principal executive officer) (filed herewith).

Rule 13a-14(a)/15d-14(a) Certification of Troy Adair, Executive Vice President and Treasurer of
Farmers (principal financial officer) (filed herewith).

Certification pursuant to 18 U.S.C. Section 1350 of Kevin J. Helmick, President and Chief Executive
Officer of Farmers (principal executive officer) (filed herewith).

Certification pursuant to 18 U.S.C. Section 1350 of Troy Adair, Executive Vice President and Treasurer
of Farmers (principal financial officer) (filed herewith).

The following materials from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language), filed
herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the
Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Stockholders’
Equity, (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial
Statements.

The cover page from the Company’s Annual report on Form 10-K for the year ended December 31,
2021, has been formatted in Inline XBRL.

*

Constitutes a management contract or compensatory plan or arrangement.

Copies of any exhibits will be furnished to shareholders upon written request. Requests should be directed to Troy
Adair, Executive Vice President, Secretary and Chief Financial Officer, Farmers National Banc Corp., 20 S. Broad
Street, Canfield, Ohio 44406.

115

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the under signed, thereunto duly authorized.

SIGNATURES

FARMERS NATIONAL BANC CORP.

By /s/ Kevin J. Helmick

Kevin J. Helmick, President and Chief Executive Officer
March 9, 2022

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Kevin J. Helmick
Kevin J. Helmick

/s/ Troy Adair
Troy Adair

/s/ Joseph W. Sabat*
Joseph W. Sabat

/s/ Gregory C. Bestic*
Gregory C. Bestic

President, Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President, Secretary and Chief
Financial Officer
(Principal Financial Officer)

Chief Accounting Officer
(Principal Accounting Officer)

Director

/s/ Anne Frederick Crawford* Director
Anne Frederick Crawford

Director

Director

Director

Director

Director

/s/ Neil J. Kaback*
Neil J. Kaback

/s/ Ralph D. Macali*
Ralph D. Macali

/s/ Terry A. Moore*
Terry A. Moore

/s/ Frank J. Monaco*
Frank J. Monaco

/s/ Edward W. Muransky*
Edward W. Muransky

/s/ David Z. Paull*
David Z. Paull

/s/ James R. Smail*
James R. Smail

Chairman of the Board

/s/ Richard B. Thompson*
Richard B. Thompson

Director

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

March 9, 2022

Vice Chairman of the Board

March 9, 2022

*

The above-named directors and officers of the Registrant sign this Annual Report on Form 10-K by Kevin J.
Helmick and Troy Adair, their attorney-in-fact, pursuant to Powers of Attorney signed by the above-named

116

directors and officers, which Powers of Attorney are filed with this Annual Report on Form 10-K as exhibits,
in the capacities indicated.

By /s/ Kevin J. Helmick
Kevin J. Helmick
President, Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Troy Adair
Troy Adair
Executive Vice President, Secretary and Chief Financial Officer
(Principal Financial Officer)

117

S T R O N G E R   T O G E T H E R
A N N U A L   R E P O R T   2 0 2 1

MARKET AND DIVIDEND SUMMARY

Quarter Ending

High

Low

Dividend

March 2021

June 2021

September 2021

December 2021

March 2020

June 2020

September 2020

December 2020

$18.26

$17.99

$16.03

$18.99

$16.50

$13.51

$12.59

$13.84

$13.03

$15.37

$14.57

$15.69

$10.32

$9.82

$10.05

$10.55

$0.11

$0.11

$0.11

$0.14

$0.11

$0.11

$0.11

$0.11

(cid:53)(cid:73)(cid:70)(cid:3)(cid:71)(cid:80)(cid:77)(cid:77)(cid:80)(cid:88)(cid:74)(cid:79)(cid:72)(cid:3)(cid:72)(cid:83)(cid:66)(cid:81)(cid:73)(cid:3)(cid:68)(cid:80)(cid:78)(cid:81)(cid:66)(cid:83)(cid:70)(cid:84)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:68)(cid:86)(cid:78)(cid:86)(cid:77)(cid:66)(cid:85)(cid:74)(cid:87)(cid:70)(cid:3)(cid:109)(cid:87)(cid:70)(cid:3)(cid:90)(cid:70)(cid:66)(cid:83)(cid:3)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:3)(cid:83)(cid:70)(cid:85)(cid:86)(cid:83)(cid:79)(cid:3)
(cid:85)(cid:80)(cid:3)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:3)(cid:80)(cid:79)(cid:3)(cid:39)(cid:66)(cid:83)(cid:78)(cid:70)(cid:83)(cid:84)(cid:3)(cid:47)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:66)(cid:77)(cid:3)(cid:35)(cid:66)(cid:79)(cid:68)(cid:3)(cid:36)(cid:80)(cid:83)(cid:81)(cid:15)(cid:8)(cid:84)(cid:3)(cid:68)(cid:80)(cid:78)(cid:78)(cid:80)(cid:79)(cid:3)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:3)
(cid:83)(cid:70)(cid:77)(cid:66)(cid:85)(cid:74)(cid:87)(cid:70)(cid:3)(cid:85)(cid:80)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:68)(cid:86)(cid:78)(cid:86)(cid:77)(cid:66)(cid:85)(cid:74)(cid:87)(cid:70)(cid:3)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:3)(cid:83)(cid:70)(cid:85)(cid:86)(cid:83)(cid:79)(cid:84)(cid:3)(cid:80)(cid:71)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:47)(cid:34)(cid:52)(cid:37)(cid:34)(cid:50)(cid:3)(cid:36)(cid:80)(cid:78)(cid:81)(cid:80)(cid:84)(cid:74)(cid:85)(cid:70)
(cid:74)(cid:79)(cid:69)(cid:70)(cid:89)(cid:13)(cid:3) (cid:85)(cid:73)(cid:70)(cid:3) (cid:47)(cid:34)(cid:52)(cid:37)(cid:34)(cid:50)(cid:3) (cid:35)(cid:66)(cid:79)(cid:76)(cid:3) (cid:74)(cid:79)(cid:69)(cid:70)(cid:89)(cid:3) (cid:66)(cid:79)(cid:69)(cid:3) (cid:85)(cid:73)(cid:70)(cid:3) (cid:52)(cid:47)(cid:45)(cid:3) (cid:46)(cid:74)(cid:68)(cid:83)(cid:80)(cid:68)(cid:66)(cid:81)(cid:3) (cid:35)(cid:66)(cid:79)(cid:76)(cid:3)
index. The graph assumes that the value of the investment in the
(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:8)(cid:84)(cid:3)(cid:68)(cid:80)(cid:78)(cid:78)(cid:80)(cid:79)(cid:3)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:3)(cid:66)(cid:79)(cid:69)(cid:3)(cid:74)(cid:79)(cid:3)(cid:70)(cid:66)(cid:68)(cid:73)(cid:3)(cid:80)(cid:71)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:74)(cid:79)(cid:69)(cid:70)(cid:89)(cid:70)(cid:84)(cid:3)(cid:9)(cid:74)(cid:79)(cid:68)(cid:77)(cid:86)(cid:69)(cid:74)(cid:79)(cid:72)
reinvestment of dividends) was $100 on 12/31/2016 and tracks
it through 12/31/2021.

Total Return Performance

Farmers National Banc Corp.

NASDAQ Composite Index

SNL U.S. Bank NASDAQ Index

Dow Jones U.S. MicroCap Banks Index

350

300

250

200

150

100

e
u
l
a
V
x
e
d
n

I

50
12/31/16

12/31/17

12/31/18

12/31/19

12/31/20

12/31/21

Index 

12/31/16  12/31/17 

12/31/18  12/31/19  12/31/20  12/31/21

                                                   Period Ending

Farmers National Banc Corp. 
NASDAQ Composite Index 
KBW NASDAQ Bank Index 
Dow Jones U.S. MicroCap Banks Index 

Source:  S&P Global Market Intelligence

© 2022 

100.00 
100.00 
100.00 
100.00 

105.51 
129.64 
118.59 
109.78 

93.02 
125.96 
97.58 
99.80 

122.29 
172.18 
132.84 
119.62 

103.01  148.07
249.51  304.85
119.14 
164.80
100.53  146.77

Investor Information

Corporate Headquarters: 
Farmers National Banc Corp.
20 South Broad Street, P.O. Box 555
(cid:36)(cid:66)(cid:79)(cid:109)(cid:70)(cid:77)(cid:69)(cid:13)(cid:3)(cid:48)(cid:41)(cid:3)(cid:21)(cid:21)(cid:21)(cid:17)(cid:23)
Phone 330-533-3341
(cid:53)(cid:80)(cid:77)(cid:77)(cid:3)(cid:39)(cid:83)(cid:70)(cid:70)(cid:3)(cid:18)(cid:14)(cid:25)(cid:25)(cid:25)(cid:14)(cid:26)(cid:25)(cid:25)(cid:14)(cid:20)(cid:19)(cid:24)(cid:23)
Website:  www.farmersbankgroup.com

Dividend Payments:(cid:3)(cid:52)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:3)(cid:85)(cid:80)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:66)(cid:77)(cid:3)(cid:80)(cid:71)(cid:3)(cid:85)(cid:73)(cid:70)
(cid:35)(cid:80)(cid:66)(cid:83)(cid:69)(cid:3) (cid:80)(cid:71)(cid:3) (cid:37)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:13)(cid:3) (cid:82)(cid:86)(cid:66)(cid:83)(cid:85)(cid:70)(cid:83)(cid:77)(cid:90)(cid:3) (cid:68)(cid:66)(cid:84)(cid:73)(cid:3) (cid:69)(cid:74)(cid:87)(cid:74)(cid:69)(cid:70)(cid:79)(cid:69)(cid:84)(cid:3) (cid:66)(cid:83)(cid:70)(cid:3)
customarily  payable  on  or  about  the  30th  day  of 
March, June, September and December.

Transfer Agent:  Computershare  Investor  Services 
(cid:49)(cid:15)(cid:48)(cid:15)(cid:3)(cid:35)(cid:80)(cid:89)(cid:3)(cid:20)(cid:17)(cid:18)(cid:24)(cid:17)(cid:13)(cid:3)(cid:36)(cid:80)(cid:77)(cid:77)(cid:70)(cid:72)(cid:70)(cid:3)(cid:52)(cid:85)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:13)(cid:3)(cid:53)(cid:57)(cid:3)(cid:24)(cid:24)(cid:25)(cid:21)(cid:19)

Dividend  Reinvestment  Plan  (DRIP):  Registered 
shareholders  can  purchase  additional  common 
(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:3)(cid:85)(cid:73)(cid:83)(cid:80)(cid:86)(cid:72)(cid:73)(cid:3)(cid:39)(cid:66)(cid:83)(cid:78)(cid:70)(cid:83)(cid:84)(cid:8)(cid:3)(cid:37)(cid:74)(cid:87)(cid:74)(cid:69)(cid:70)(cid:79)(cid:69)(cid:3)(cid:51)(cid:70)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:3)(cid:49)(cid:77)(cid:66)(cid:79)(cid:15)
Participation  is  voluntary  and  allows  for  automatic 
reinvestment of cash dividends and the safekeeping
(cid:80)(cid:71)(cid:3)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:3)(cid:68)(cid:70)(cid:83)(cid:85)(cid:74)(cid:109)(cid:68)(cid:66)(cid:85)(cid:70)(cid:84)(cid:15)(cid:3)(cid:53)(cid:80)(cid:3)(cid:80)(cid:67)(cid:85)(cid:66)(cid:74)(cid:79)(cid:3)(cid:66)(cid:3)(cid:81)(cid:83)(cid:80)(cid:84)(cid:81)(cid:70)(cid:68)(cid:85)(cid:86)(cid:84)(cid:13)(cid:3)(cid:68)(cid:80)(cid:79)(cid:85)(cid:66)(cid:68)(cid:85)(cid:3)
the Computershare Investor Services at (cid:25)(cid:24)(cid:24)(cid:14)(cid:22)(cid:25)(cid:18)(cid:14)(cid:22)(cid:22)(cid:21)(cid:25)(cid:15)

Direct  Deposit  of  Cash  Dividends:  The  direct
deposit  program,  which  is  offered  at  no  charge,
(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:69)(cid:70)(cid:84)(cid:3)(cid:71)(cid:80)(cid:83)(cid:3)(cid:66)(cid:86)(cid:85)(cid:80)(cid:78)(cid:66)(cid:85)(cid:74)(cid:68)(cid:3)(cid:69)(cid:70)(cid:81)(cid:80)(cid:84)(cid:74)(cid:85)(cid:3)(cid:80)(cid:71)(cid:3)(cid:82)(cid:86)(cid:66)(cid:83)(cid:85)(cid:70)(cid:83)(cid:77)(cid:90)(cid:3)(cid:69)(cid:74)(cid:87)(cid:74)(cid:69)(cid:70)(cid:79)(cid:69)(cid:84)
directly  to  a  checking  or  savings  account.  For 
information regarding this program, please contact 
the Computershare Investor Services at (cid:25)(cid:24)(cid:24)(cid:14)(cid:22)(cid:25)(cid:18)(cid:14)(cid:22)(cid:22)(cid:21)(cid:25)(cid:15)

Annual Report on Form 10-K: A copy of the Annual
(cid:51)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:3) (cid:80)(cid:79)(cid:3) (cid:39)(cid:80)(cid:83)(cid:78)(cid:3) (cid:18)(cid:17)(cid:14)(cid:44)(cid:3) (cid:109)(cid:77)(cid:70)(cid:69)(cid:3) (cid:88)(cid:74)(cid:85)(cid:73)(cid:3) (cid:85)(cid:73)(cid:70)(cid:3) (cid:52)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:3) (cid:66)(cid:79)(cid:69)(cid:3)
Exchange  Commission  will  be  provided  to  any
(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:3)(cid:80)(cid:79)(cid:3)(cid:83)(cid:70)(cid:82)(cid:86)(cid:70)(cid:84)(cid:85)(cid:3)(cid:85)(cid:80)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:66)(cid:85)(cid:85)(cid:70)(cid:79)(cid:85)(cid:74)(cid:80)(cid:79)(cid:3)(cid:80)(cid:71)(cid:27)(cid:3)(cid:46)(cid:83)(cid:15)(cid:3)(cid:53)(cid:83)(cid:80)(cid:90)
Adair, Farmers National Banc Corp., 20 South Broad
(cid:52)(cid:85)(cid:83)(cid:70)(cid:70)(cid:85)(cid:13)(cid:3)(cid:49)(cid:15)(cid:48)(cid:15)(cid:3)(cid:35)(cid:80)(cid:89)(cid:3)(cid:22)(cid:22)(cid:22)(cid:13)(cid:3)(cid:36)(cid:66)(cid:79)(cid:109)(cid:70)(cid:77)(cid:69)(cid:13)(cid:3)(cid:48)(cid:41)(cid:3)(cid:21)(cid:21)(cid:21)(cid:17)(cid:23)(cid:15)

Common  Stock  Listing  and  Information  as  to
Stock Prices and Dividends: 
(cid:53)(cid:73)(cid:70)(cid:3) (cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:8)(cid:84)(cid:3) (cid:68)(cid:80)(cid:78)(cid:78)(cid:80)(cid:79)(cid:3) (cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:3) (cid:85)(cid:83)(cid:66)(cid:69)(cid:70)(cid:3) (cid:80)(cid:79)(cid:3) (cid:85)(cid:73)(cid:70)(cid:3)
(cid:47)(cid:34)(cid:52)(cid:37)(cid:34)(cid:50)(cid:3) (cid:36)(cid:66)(cid:81)(cid:74)(cid:85)(cid:66)(cid:77)(cid:3) (cid:46)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:3) (cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:3) (cid:85)(cid:73)(cid:70)(cid:3) (cid:84)(cid:90)(cid:78)(cid:67)(cid:80)(cid:77)(cid:3) (cid:39)(cid:46)(cid:47)(cid:35)(cid:15)
Set  forth  in  the  accompanying  table  are  per  share
prices at which common shares have actually been
purchased  and  sold  in  transactions  during  the
periods indicated, to the knowledge of the Company.
Also included in the table are dividends per share
(cid:81)(cid:66)(cid:74)(cid:69)(cid:3)(cid:80)(cid:79)(cid:3)(cid:85)(cid:73)(cid:70)(cid:3)(cid:80)(cid:86)(cid:85)(cid:84)(cid:85)(cid:66)(cid:79)(cid:69)(cid:74)(cid:79)(cid:72)(cid:3)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:8)(cid:84)(cid:3)(cid:68)(cid:80)(cid:78)(cid:78)(cid:80)(cid:79)(cid:3)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)
and any shares dividends paid. As of December 31,
(cid:19)(cid:17)(cid:19)(cid:18)(cid:13)(cid:3)(cid:85)(cid:73)(cid:70)(cid:83)(cid:70)(cid:3)(cid:88)(cid:70)(cid:83)(cid:70)(cid:3)(cid:20)(cid:20)(cid:13)(cid:25)(cid:26)(cid:25)(cid:13)(cid:19)(cid:20)(cid:23)(cid:3)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:3)(cid:80)(cid:86)(cid:85)(cid:84)(cid:85)(cid:66)(cid:79)(cid:69)(cid:74)(cid:79)(cid:72)(cid:3)(cid:66)(cid:79)(cid:69)
3,719 shareholders of record of common shares.